What is Causing the Housing Crisis?

Unlike the title to this Tip, maybe the question should be: What is Not causing the crisis in housing?

That is, recent studies in many sectors of the housing industry continue to report that the reduced number of units being built, the higher interest rates, the concern with employment among potential buyers, the increased price of housing, the cost of insurance, and the rise in property taxes, income tax issues, and much more all are weights that are pulling down the construction and sale of new and older homes.

With all these variables, it is difficult to “solve the problem of the housing market.”

As reported in many sources, such as the National Association of Home Builders (NAHB), the National Association of Realtors(NAR), the Wall St Journal, and others, confidence levels are down when addressing the issue of building, selling, and/or buying a home in the present financial setting in the US.

The Wall St. Journal reported that the NAHB/ Wells Fargo Housing Market Index gauge for builder confidence for new single-family housing fell in Oct 2026 by 3 points. This, according to the report, is the lowest reading since 2012. This does not speak well for assuming that there will be a strong increase in home building.

On the side of buyers, it is clear that many buyers may want to purchase a home, new or used, first or as a move-up, but they are deterred by many forces, such as higher priced homes, higher interest rates, great property taxes, increased insurance rates, costs to maintain the residence, concern with job prospects, and other issues.

With a lack of supply of homes priced within the reach of many buyers that desire a home, it appears the market will remain sluggish.

If interest rates drop and the price for purchase of a home is also reduced—by sellers who need and want to sell their home, there is the potential of reducing the headwinds that are creating impediments for the building and purchase of homes. However, how and what will cause interest rates to drop and sellers to reduce the price of their home for sale raises many issues. (We have addressed these and related issues in several articles. See the Levine, Prior Tips, as noted at the end of this Tip, for such articles.)

It is also possible that Congress may choose to provide incentives that will reduce this logjam. If Congress would pass legislation to reduce or eliminate the income tax on the sale of a residence, sellers may be more inclined to reduce the price of their for sale home.

Further, Congress may provide for credits or other tax benefits for buyers of homes, thus giving more financial support on the acquisition of a home. Tax credits for builders is another option for Congress in this area of tax incentives to encourage more activity in the home sales market. (For more on this issue, see the detailed article by Levine and Segev in the Real Estate Law Journal as mentioned in prior Tips.)

Until there are major changes in some of the areas noted above, it appears the housing market will remain sluggish.

By

Dr. Mark Lee Levine, Professor, University of Denver