The US housing market may be facing a slowdown in demand rather than an outright shortage, according to David Kelly, chief global strategist at JP Morgan Asset Management, who expects weaker population growth and falling immigration to reduce the need for new homes.
Kelly forecasts annual US population growth of about 800,000 over the next few years. With an average household size of roughly 2.5 people, he said that would create demand for only about 320,000 new housing units a year, compared with around one million annually during the first two decades of this century.
His assessment challenges the widely held view that America has simply failed to build enough homes. Zillow estimated in July that the country was short of about 4.7 million properties in 2024, based on the number of families sharing accommodation compared with homes vacant for rent or sale.
Kelly’s analysis is that the US remains “still in a situation of net excess supply”, despite the shortage narrative.
Immigration and household growth slow
The US population grew by an average of 2.4 million people a year between 2000 and 2020. About 1.5 million came from births exceeding deaths, while net immigration accounted for roughly 900,000.
Natural population growth peaked at 520,000 in 2025 and is expected to resume a long-term decline as the population ages and birth rates fall. Net international migration dropped to 1.3 million in the year to July 2025, from 2.7 million a year earlier.
The Census Bureau projected net migration of about 321,000 by July 2026 if that trend continued. Kelly estimated that deportations were now almost offsetting legal net immigration, which remained positive but at a lower level.
He said he expected that pattern to continue “regardless of the outcome of the midterm elections”, arguing that enforcement largely rested with the administration and that Congress and the White House were unlikely to agree an immigration reform bill.
Vacancy data also points to weaker demand. Kelly said the rental vacancy rate had risen from 5.6 per cent to 7.3 per cent over the past four years, while the homeowner vacancy rate had increased from 0.8 per cent to 1.2 per cent.
Separate Census figures put rental vacancies at 7.6 per cent in the third quarter, up from 7.1 per cent a year earlier. The US housing stock grew by about 2.8 million units between the second quarter of 2024 and the second quarter of 2026.
The Harvard Joint Center for Housing Studies has also said household growth had “slowed sharply”, while the Mortgage Bankers Association has projected 8.6 million new households between 2025 and 2035. That compares with 10.1 million in the previous decade.
High mortgage rates keep buyers away
Fewer buyers have not yet translated into substantially cheaper mortgages. The average 30-year fixed rate stood at 7.32 per cent last week, below its 50-year average of 7.68 per cent but well above the 4.15 per cent average recorded between January 2008 and December 2021.
Kelly described the period of exceptionally low borrowing costs as “the anomaly” and said there was “little reason to believe that mortgage rates will fall much below 7.0 per cent” without a recession.
Homebuilding has weakened as buyers have pulled back. The National Association of Home Builders’ buyer-traffic measure fell to 18 in October, its lowest level since April 2012 apart from the start of the pandemic, while 43 per cent of builders cut prices.
Kelly expects housing starts to reach 1.32 million this year, the weakest level since 2019, before falling to 1.24 million in 2027. Residential construction declined for the eighth time in the past ten quarters.
Builders are also facing higher costs and labour shortages. Construction wages are rising faster than in other sectors, partly because of changes in immigration and partly because data-centre projects are competing for the same workers.
Tariffs and the wider infrastructure boom have increased material costs. Spending on data centres rose 73 per cent in the year to August, reaching an annual rate of 85 billion dollars, and Kelly said the pressure on resources was likely to intensify in 2027.
He expects the Federal Reserve to raise interest rates in December, although he believes weak housing could make that the final increase of the cycle. A sudden acceleration in wage growth or a significant rise in inflation expectations would alter his view.
The impact is particularly pronounced among younger adults. Homeownership has fallen since 2022, with a sharper recent decline among people aged under 35, according to Kelly.
He attributed the drop not only to mortgage rates but also to tougher lending standards and the greater ability of older households to build larger deposits. The result, he said, was delaying young people’s hopes of marrying, settling down and raising a family in their own home.
