Is the frozen housing market starting to thaw?

Affordability looked fine—until it didn’t

Before the COVID-19 pandemic, in an era of very low interest rates, housing affordability wasn’t painless, but it was broadly workable; problems were concentrated mostly in the biggest U.S. cities. The mortgage market is driven by payments: When interest rates are low, buyers can support larger loan balances with the same monthly payment, keeping affordability looking okay even as home prices drift higher.

Yet low rates in the 2010s arguably masked long-term structural weaknesses in the housing industry. Conditions were set for an affordability crisis, especially as housing supply had been severely constrained in the years following the global financial crisis (GFC) beginning in 2008. That crash drove many builders (particularly smaller ones) out of business, tightened lending standards and pushed large pools of skilled labor out of the industry.

These conditions persisted for many years. Even as demand gradually recovered towards the end of the 2010s, new construction remained well below pre-crisis levels for an extended period, leaving a deep cumulative supply deficit.

When construction can’t keep up with household formation, housing demand gets turned into higher prices—but the pain for homebuyers may be delayed as long as financing stays cheap.

But mortgage rates shot up during the pandemic—from a nadir of 2.70% in late 2020 to a peak in 2023 of just over 7.60%. Potential buyers in the market faced the most abrupt payment shock in about a generation.

The shock was worsened because, at the time, the supply of homes was around three million housing units short, relative to demand, according to our calculations.¹

To be sure, builders eventually responded by supplying more homes, but not fast enough to keep pace with blistering demand. Building homes is not like producing widgets. Success  depends on entitlements,² buildable lots, skilled labor, materials and time. Even in flexible markets, a surge in demand shows up first as higher prices and lower inventory. In constrained markets, it can become a multi-year affordability problem. And so it did.

As of now, the supply response has ended: The number of housing units under construction has fallen back toward pre-pandemic levels and builders can’t offer the kind of enticing concessions they once did, to lure in marginal buyers.

Given the pressure that past concessions put on homebuilder profit margins, we should not expect a second wave of booming housing construction to begin anytime soon.

The resulting affordability crisis freezing sales activity

The consequence of these dynamics is an affordability crisis that has depressed home sales activity far below what we might expect if this were a healthy market. Indeed, relative to the size of America’s household population, total housing sales remain depressed at levels below the aftermath of the 2008 GFC. For all intents and purposes, sales activity is frozen.

But we think an interesting question, for 2026 and beyond, is this: Even as the national market remains frozen, are there any particular metros where sales activity is thawing? If so, what differentiates them?

The metro lens: Thawing amid a national freeze

A useful starting point for this question comes from a simple relationship: Cities where active inventory has rebuilt—especially where it has climbed back above pre-pandemic levels—are more likely to have seen home prices fall from their peak in 2022, as the chart below shows.

The relationship the graphic illustrates doesn’t prove causality, but it points to a mechanism that matters: Where availability improves, price pressures tend to ease. And if prices soften (or at least stop rising) while incomes grow, affordability can begin to heal—even if mortgage rates remain uncomfortably high.³

Unsurprisingly, many Sun Belt metros appear in this “inventory up/prices down” quadrant. These markets generally have higher supply elasticity: more abundant land, faster expansion at the metro edge and (often) fewer binding constraints in the entitlement/permitting pipeline than the Northeast and other highly supply-constrained regions.

Add in that many Sun Belt markets saw a surge of pandemic-era building that is finally now delivering with a lag. All combined, these are the ingredients for inventory to rebuild and prices to reset.

But what about sales activity? Improved inventory and softer prices are only half the story. Are those shifts enough to restore and unfreeze markets, from the perspective of sales volume?

Do lower home prices and increased inventory spur sales?

To assess this, we look for metros at the intersection of lower home prices, higher inventory and higher sales activity. We illustrate the metros where this is occurring using the same scatter chart, expanded to include all available sales data on both the metropolitan and micropolitan level. The extra dimension—sales—we add through color: A greener dot means higher sales activity from pre-pandemic levels, and red means sales are lower.

We do see a loose relationship. As inventory rises and price pressure eases, the market becomes less one-sided and the odds improve of transactions picking up.

But the relationship is not mechanical. It hinges on one more critical factor: how expensive a metro’s homes already are, compared to the national norm. Prices can fall meaningfully from 2022 peaks and still be unaffordable, in absolute terms. If prices started very high, a drop may improve the headline number without making monthly payments workable—especially at today's interest rates. 

That's why some markets show rising inventory and falling prices, yet few homes actually change hands. The math still doesn't work for most buyers.

The reverse is also true: Cheaper metros can see busy turnover even with tight inventory and rising prices because monthly payments remain manageable. McAllen, Texas is a good example. Prices haven’t fallen, yet sales activity continues to boom. The reason is straightforward: McAllen’s median home price is $194,000. The national median is $366,000.⁴

To capture the combined effect of these forces, we summarize the intersection of the three variables using a Market Health/Thawing™ Index:

Thawing Index = 0.50 ⋅ sales_pct + 0.25 ⋅ Inventory_pct + 0.25 ⋅ (1−Price_pct)

The weights reflect the view that sales activity is the most direct evidence that a market is thawing (so it receives the largest weight), while inventory and price dynamics serve as enabling conditions.

Across metros the dispersion is striking: The “thawing leaders” are overwhelmingly in the Sun Belt, the Southeast, Texas and Florida markets, while the “deep-freeze laggards” cluster heavily in the Northeast corridor and areas with a legacy of supply constraints.

Topping the ranking are metros in Texas and Florida, plus a handful of fast-growing Southeast markets such as in the Carolinas, where the supply response has been more elastic.

The bottom of the rankings skew heavily to the Northeast, Mid-Atlantic and New England—markets where supply remains structurally constrained, price levels often remain high in absolute terms and the lock-in effect likely bites harder because owners with low legacy mortgage rates face especially steep “trade up” penalties.

The following map shows our constructed Thawing Index for all available metro areas across the United States, where the greener areas indicate a higher value (thawing) and the redder areas indicate a lower value (frozen). Specific data for a given metro area of interest is available on request.

Conclusion

Our housing assessments may filter into your calculations if you’re thinking about buying or selling a home, and as you consider your liquidity profile and financial planning.

If you’d like to examine your financial planning related to real estate holdings, home buying and selling, and their potential impacts on your liquidity, your J.P. Morgan team can help.