The U.S. housing supply gap widened to 4.03 million units as new construction faltered last year, fueling a vicious cycle of displacement that has essentially erased an entire generation from the market.
Nearly 2 million young would-be buyers found themselves trapped in a state of suspended adulthood, reflecting affordability headwinds and other structural hurdles, according to the latest supply gap report from Realtor.com®.
Researchers found that the housing deficit persisted through 2025 as construction fell nearly 50,000 units short of demand. Despite 1.36 million housing starts, the creation of 1.4 million new households meant that the cumulative housing deficit continued to widen.
To calculate the housing supply gap, economists factor in three components: new-home construction, household formations, and pent-up housing demand. This gap represents the divide between new construction and the total demand from both newly formed families and “missing households”—individuals who, based on historical trends, would have struck out on their own but did not.
“Over the past decade, many households, particularly younger ones, have delayed forming due to limited supply and worsening affordability,” says Realtor.com senior economic research analyst Hannah Jones. “Rather than establishing independent households, many young adults have remained with parents, lived with extended family, or shared housing with roommates.”
Experts estimate pent-up housing demand by comparing current millennial and Gen Z headship rates, which measure the share of a population that heads its own household, with those of similarly aged people in 2010–14.
The delta between 2025 rates and the earlier benchmark reveals the scale of suppressed demand: The 1.82 million Gen Z and millennial households that likely would have formed had they not been stifled by inventory shortages and worsening affordability.
Put differently, there were nearly 2 million fewer households among 18- to 44-year-olds than would be expected if headship rates matched those from a decade ago.
“For many early-career to midcareer workers, purchasing a home at today’s prices and mortgage rates remains financially out of reach,” says Jones. These individuals instead remain living with parents, other relatives, or roommates.
This finding reflects recent data from the National Association of Realtors® showing that the median age of first-time buyers rose to 40 last year, a record high.
“For many millennials and Gen Z households, it comes down to affordability and savings,” Nadia Evangelou, principal economist at NAR, tells Realtor.com. “High rents make it hard to save for a down payment, and starter homes are often priced well above what early-career incomes can support. On top of that, the entry-level market is very tight, and younger buyers are often competing with repeat buyers who already have equity.”
At the same time, the share of 18- to 44-year-olds living with their parents was, on average, 2.7 percentage points higher by age than during 2010–14.
For the housing market, that translated into fewer young people renting and purchasing homes on their own last year.
“It’s not that young adults don’t want their own place,” notes Evangelou. “It’s an affordability challenge.”
The missing generation of homebuyers could also have serious implications for overall inventory levels.
“When younger buyers are less active in the market, older homeowners become less likely to sell, which keeps inventory low, especially at entry-level price points,” Owen Canavan, affiliate broker with Miracle LLC, tells Realtor.com. “Ultimately, this pushes prices higher and exacerbates affordability issues for future first-time buyers.”
Tania Jhayem, a real estate agent at Keller Williams The Marketplace’s luxury division in Las Vegas, agrees, explaining that younger households represent a massive portion of the natural first-time homebuyer pipeline.
“When they sit on the sidelines, entry-level inventory doesn’t move as quickly, and the higher price tiers also slow because fewer sellers are able to sell and trade up,” she tells Realtor.com. “We’re essentially seeing a bottleneck. Demand isn’t gone. It’s just been postponed.”
Affordability headwinds stifle demand
Realtor.com research confirms that the household formation rate plummeted in large part due to affordability constraints. In 2025, the minimum recommended income to purchase a median-priced starter home was roughly $86,000, which was higher than the typical income for people in their 20s and early 30s.
“Even buyers who earn solid incomes are struggling with down payments, closing costs, and qualifying at today’s rates,” says Jhayem. “On top of that, many millennials are still carrying student loan debt, and Gen Z is entering the market at a time when borrowing standards are more cautious and housing prices are more elevated. The desire is there. It’s just a little tougher to bridge the affordability gap.”
Despite recent affordability improvements, the average down payment was 14.4%, with the median down payment amount totaling $30,400.
Evangelou, the NAR economist, points out that a supply mismatch is partly to blame.
“The homes being built and listed are not aligned with the incomes of younger households, and the shortage is concentrated in low- and middle-income ranges—exactly where first-time buyers are looking,” she says.
At today’s savings rates, Realtor.com research determined that it would take the median-income household seven years to save up for a typical down payment.
“If housing were more abundant and affordable, some of these individuals would likely form households, increasing annual household formation and reducing the pent-up demand currently embedded in the market,” says Jones.
Regional differences in pent-up demand
Regionally, the South had the largest number of missing millennial and Gen Z households in 2025, with the Northeast in second place, despite its smaller population base. This highlights the degree of affordability pressures and underbuilding in the region.
“For many millennial or younger buyers, or really any buyer for that matter, I would love to see more lower down payment options for those with excellent credit,” Christopher Raad, owner of Harvey Z. Raad Realtors in Allentown, PA, tells Realtor.com. “If a buyer shows that they have the ability to pay for a rent payment and can keep a high credit score, they should be rewarded for being responsible while keeping up with their debts and have an opportunity to break into the housing market.”
However, the Northeast was the only U.S. region to see improvement in both missing young households and the overall supply gap in 2025, supported by housing starts reaching their highest level since 2015.
Overall, the South recorded the largest number of new household formations and the Northeast the fewest. Meanwhile, the West saw fewer new households than the Midwest, contributing to a widening relative gap in the Midwest.