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America’s Most Important Asset Is In Trouble – Here's Why

By Peter Reagan Last updated on 4/21/26 Share

Most people aren’t familiar with the principles or details of economics, the different schools of thought in the field – or economic theories at all. If you’re one of them, I can’t say I blame you! There’s a reason Thomas Carlyle called economics “the dismal science.” 

Even so, everyone understands the link between supply and demand. I like the way Ron Paul described it in his article on the copper standard: 

“Here in Texas, in November, all the pecan trees are heavy with nuts. You can buy a one-pound bag of shelled pecans for a dollar. A few months later, out of season, if you want pecans at the grocery store they’ll run you anywhere from $9-$14 a pound! This is not inflation – it’s just seasonal fluctuations in supply…

"So, when you’re thinking about a commodity like pecans, more supply means lower prices. Too many pecans all at once means your pound of pecans is worth less money.”

Generally, we don’t experience supply and demand directly – instead, we see the effects of supply and demand on prices. 

It’s only in rare situations when it looks like the relationship between supply and demand breaks down. When these situations happen, it’s worth paying attention!

That’s why we’re taking a closer look at the housing market today… 

Are home prices violating the law of supply and demand?

First off, this U.S. Chamber of Commerce report from March lays out the challenge: 

Housing has long been a cornerstone of the American dream and a vital component of the nation’s economy. Yet, the U.S. housing market is in crisis, driven by a fundamental imbalance between supply and demand. A severe shortage of over 4.5 million homes has created cascading economic and social challenges… 

Estimates vary, but the consensus is that the U.S. housing market supply is simply insufficient by 3.5 - 8 million homes. 

There’s even a widget that allows you to zoom in and see the economic impact of the housing shortage state by state. Here in California, for example, they estimate the housing deficit is costing: 

• $63 billion in lost economic output
• $36 billion less personal income
• 386,000 jobs not generated

Solving this housing shortage in California alone would add 0.2% to the entire nation’s GDP!

Seems like a problem we should solve, doesn’t it?

The law of supply and demand should solve the problem for us. When there’s a shortage of supply, whether it’s homes in California or pecans in Texas, prices rise. Higher prices make building new homes more profitable for homebuilders, leading to increased supply. Higher prices give homeowners an incentive to sell at a profit, too… 

Normally, prices solve supply problems like this one. Which is why what we’re actually seeing in the housing market is so very strange.

See, in a huge number of markets in the U.S., housing prices are down:

Nearly one-third of the largest 100 markets are now showing annual price declines of at least a full percentage point from recent highs, and the trend suggests more markets will do the same.

That’s right, housing prices in many areas are falling. But that doesn’t make sense! A shortage of supply should lead to higher prices. 

Wolf Richter breaks down the 10 major cities with the biggest price declines – ranging from -9% to a jaw-dropping -23%. 

How is this possible? How can prices fall when there’s such a huge shortage of supply?

What is going on with home prices?

Here’s what we know so far: 

• There’s a massive shortage of housing (appx. 6 million)
• Yet home prices are falling overall

In fact, the decline in home prices has construction companies worried: 

U.S. homebuilders are cutting down on the number of new residential construction projects that they feel confident starting across the country…down by 4.6 percent compared to a year earlier and down by 9.8 percent from April.

Okay – if both supply and price are declining, where does that leave us? 

With a scary conclusion – this situation can only mean that demand is down.

Remember when I said that prices solve imbalances between supply and demand? That’s only true if people can afford to pay. 

Right now, they simply can’t. I mentioned the mismatch between rising home prices and stagnating purchasing power previously: 

For decades, home price appreciation has been outstripping earnings growth. In the last 25 years, home values have more than tripled. The steepest climb came between 2020 and 2022, when pandemic moves and ultra-low mortgage rates spurred a buying frenzy across the country.

Meanwhile, median incomes from 2000 to 2023 did not quite double.

Well, it’s actually gotten worse. On average, household income falls short by a shocking 55%:

Note also that, at the worst of the mid-2000s housing bubble, the affordability gap peaked at 46% – that was bad enough. 

Today’s situation is much, much worse. 

Mortgage rates over 6% certainly don’t help – but let me remind you, lower interest rates WILL NOT make homes more affordable. Lower interest rates will only make mortgages more affordable. Mortgage rates set the cost of debt, not the price of homes. 

So when the President says: 

“Too Late [Jerome Powell],” and the Fed, are choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house…

Well, I respectfully disagree. In fact, when mortgage rates fall, home prices rise. And vice versa.

Now, you might be thinking I’m ranting about this because I’m a realtor on the side. No, it’s because the housing market is much more important to the U.S. economy than capital markets. 

• The housing market makes up about 1/6th of the entire U.S. economy
• Two-thirds of American families own their home (and for most, it’s their single biggest financial asset)
• Home equity represents about half of household net worth
• More of our national wealth is invested in housing than any other asset class

As much as finance bros yammer about start-ups and hedge funds and forex trading, or Jim Cramer shouts about CEOs and M&A deals, the housing market matters much, MUCH more to everyday Americans. 

All that other stuff is just noise. 

The housing market is the economy

The way I see it, there are only a couple of ways out of this mess: 

First, home prices could fall significantly, something like 50%, to bring them back into line with household income. I seriously doubt that’s possible – especially when we consider that, from the mid-2000s Housing Bubble 1.0 peak to its bottom, prices only fell about 26% overall. And that nearly destroyed the national economy. 

Second, and I’m afraid much more likely, interest rates will fall. Mortgages (but not homes!) will become more affordable. That will send home prices higher. Families will begin signing a new generation of “no income, no assets, no job” loans – not to buy a home to live in, but as a speculative asset they intend to sell for a profit. (You probably remember how this ends…)

Third, and I’m not really sure how this could happen, the U.S. economy could suddenly become massively wealthier – somehow, overage household incomes could rise 50% through some combination of AI, tariffs and our nation’s industrial renaissance. Maybe I’m just lacking in imagination, but I honestly don’t see how the math works here. 

Here’s my primary concern: Your home is very likely your #1 financial asset (as well as where you live). 

A lot of Birch Gold customers I’ve spoken to lately tell me they intend to use their home as a way of funding their retirement. 

That’s a problem. Because home prices are falling, demand for homes is down and HELOC rates are not pretty… 

If your home is your biggest asset, too? Then I want you to take a moment and reflect on the risk profile of that asset. We tend to think of real estate generally, and our homes specifically, as a prudent investment. “Safe as houses,” as they say in the UK. 

But too many American families have “concentration risk” in their homes. That’s the opposite of diversification! And there’s another tangible physical asset that I’d argue performs just as well, if not better, over the long term: 

Note: CAGR stands for Compound Annual Growth Rate, overall average yearly return. Data via U.S. Census Bureau, Federal Reserve Bank of St. Louis, World Gold Council, Macrotrends.

Now, please keep in mind there are decades when housing did far better! I selected 1973 as the first full year after the end of the gold standard, all the way up to the present.

Here’s my point: You have access to another tangible, safe-haven asset that historically holds its value as well as, if not better than, your home. Physical gold bullion is a lot more liquid than real estate. Owning physical gold is a lot less expensive, too – you never need to worry about a new roof or a bathroom remodeling. Plus, owning physical precious metals brings you all the benefits of diversification. 
Please take a moment to learn more about the benefits of diversifying with physical precious metals right now. And if you haven’t already done so, request your free Precious Metals Information Kit today.

BGG - About the Author

About Peter Reagan

Peter Reagan has covered precious metals and the economy for Birch Gold Group for over 15 years. His articles have been featured in several leading publications, including Newsmax and Zerohedge. At Birch Gold Group, Peter leverages his deep market insights to help educate website visitors and customers on why they should consider diversifying their savings into gold and other precious metals, and how that process works. Due to this commitment to education, his content has become a trusted source of information throughout the industry.