The post-financial crisis narrative of a housing shortage is starting to unravel. 

A combination of low immigration, limited population growth and aging boomers could lead to a flattening of housing demand in the next couple decades, according to a white paper published by the Mortgage Bankers Association. 

"Over the past several years, growth in housing demand has slowed as new housing supply has entered the market in many regions," said Mike Fratantoni, MBA's SVP and Chief Economist in a press release.

The average demand for additional housing units is approximately 1.13 million units per year from 2025 to 2035 and 802,000 units per year from 2045, according to MBA estimates. 

After the 2008 financial crisis, millennials entered the housing market and kept demand strong, pushing prices up until 2019. At the time, builders struggled to keep up with demand, creating an estimated shortfall between 1.5 million and 7.5 million homes. 

Then, the low mortgage rates post-pandemic led to a greater surge in buyer demand. Builders flocked to hot markets with space and flexible zoning. However, by the time these new homes hit the market, the initial demand from the pandemic subsided, as rising interest rates, affordability concerns and a softening labor market brought down consumer sentiment. 

Now, sellers already outnumber buyers in many U.S. markets, where an oversupply of unsold homes prompt builder incentives like mortgage rate buydowns. Sunbelt markets are seeing higher inventory and slower price growth while the northeast and midwest continue to see stronger price growth due to building constraints like restrictive zoning and high permitting costs. 

Less housing demand is concerning for builders who have lower confidence and have less permit applications since the 2022 peak. Still, if construction remains elevated, home prices could continue to tick downward. 

The shift would have several ripple effects, including lower origination volume and risks to borrowers' equity. 

There is also the risk of pushing today's home borrowers underwater on their mortgage, as those with the lowest down payments have the least equity cushion to absorb a price decline. 

While GenZ is slowly moving towards the home-buying age, they are a smaller cohort than millennials. Immigration has supported U.S. population growth, but recent changes to policy could make net immigration negative, according to the report. The U.S. birth rate has been below replacement rates, falling to 1.6 births per woman, and households are expected to form slower than before. 

As boomers exit the housing market, they are expected to add to the housing supply over the next two decades. That will lead to a more moderate pace of increasing housing inventory, rather than the once-popular idea of "silver tsunami" of boomer homes on the market, the report concluded. 

There could be a growth in supply of 10.6 to 14.6 million homes from 2026 to 2035, according  MBA estimates. The growth in supply could exceed demand by as early as 2035.