Indeed, Moody’s Analytics chief economist Mark Zandi tells Fortune that in December 2022 he had expected national home prices to decline by 2% by December 2023. Instead, prices grew 5%. 

“The stronger-than-anticipated house prices is due to the severe lack of supply of homes for sale, as the lock-in effect on existing homeowners was more significant and persistent than anticipated,” he says. “Life events, such as death, divorce, children, or job change, should cause people to move, but people have delayed their moves as they have a mortgage with a much lower rate than existing rates, and moving would be too costly.”

Ultimately, mortgage rates and home prices have continued to lock many first-time homebuyers out of the market, and that will continue to be a problem, he says.

“For the two-thirds of Americans who own their home, the higher prices mean a massive increase in their wealth,” he posted on X (formerly Twitter) on Sunday. “But of course, this is a massive problem for potential first-time homebuyers. Given the collapse in affordability, buying a home is not even remotely possible.”

The housing inventory problem

Although recent reports by the U.S. Census Bureau show that new housing starts and completions are on the rise, the U.S. is still in the throes of a major housing deficit. Indeed, Moody’s Analytics estimates in a report published Friday that there is still a total housing deficit of 1.5 million to 2 million units in the U.S. 

“One good year of ‘excessive’ supply was only in its relative term when compared with affordability-constrained demand,” Moody’s Analytics analysts Nick Villa, Christopher Rosin, and Lu Chen wrote in the report. “There is a long way to go before solving the chronical housing shortage.”

Although more than 1 million housing units were built each of the past two years, “there is still a significant shortfall in single-family housing stock due to years of underbuilding since the Global Financial Crisis,” they add. Privately owned housing starts in December 2023 were at a seasonally adjusted annual rate of 1.46 million, which is 4.3% below the revised November estimate, but 7.6% higher than the December 2022 rate, according to the U.S. Census Bureau. 

Although housing starts were up year over year, there were still only 3.2 months of housing supply by the end of 2023, according to the National Association of Realtors. That’s “well below” the six months’ supply that “many economists equate with a balanced housing market, underscoring how a multiyear recovery process still lies ahead,” Villa, Rosin, and Chen wrote in the Moody’s report.

While there is still a major shortfall, Zandi says, the market is going to have to shift eventually.

“I do expect people with changing life circumstances will ultimately need to move, creating more inventory and putting downward pressure on prices, but that didn’t happen in 2023,” he notes. 

Zandi, along with other economists and housing advocates, says that the key to solving the housing affordability crisis in the U.S. is to increase housing supply. Zandi suggests expanding the low-income housing tax credit to also include affordable single family homes for homeownership.

“This would provide single family homebuilders a meaningful tax incentive to put up more homes at price points that potential first-time homebuyers could afford,” he says.

Moody’s Analytics colleagues also said that fixing the housing shortage would require a “joint effort and creativity” from both the private and public sector, according to the report. 

“Of course, there is no slam-dunk policy step that will solve the problem quickly,” Zandi says. “It would take a multifaceted and persistent policy response to do that.”