Why the cost of Homes are so high and the challenge to lower prices

Updated: 2025 | By Jay Bru Group | Scottsdale, AZ Real Estate

Home prices have climbed dramatically across the United States over the past few years, and many people are asking the same question: Why are homes so expensive right now? The answer isn’t just one thing — it’s a combination of supply issues, rising construction costs, interest rates, migration trends, and investor activity.

Let’s break down what’s driving today’s housing market and what it means for buyers, sellers, and investors.

1. There Aren’t Enough Homes Available

This is the core issue: supply is limited.

There are millions of residential lots across the U.S., but many of them are not being developed into finished homes fast enough. Builders are cautious because:

• Construction costs are higher than ever.  Inflation is finally under control but still high. 

• Labor shortages slow down timelines.  Labor costs are so high that it costs $300 to change a tap spout. 

• Financing and risk management are more complicated when rates are high.  We need rates down for affordability but demand will increase and with low supply, prices will go up once again, we need to build more homes. 

This means there are not enough homes on the market to meet demand, and when supply is low, prices rise. Simple economics.

2. Construction Costs Have Increased

Even if builders wanted to flood the market with new homes with the 2 million lots they hold, they can’t build cheaply anymore.

Cost pressures include:

• Higher material prices (lumber, steel, drywall, concrete)

• Increased labor costs due to worker shortages

• Higher land acquisition costs

• Impact fees, permits, and regulatory expenses

Because building is more expensive, builders focus on higher-priced homes, which keeps entry-level housing scarce. So the smaller 3BD-2BA starter homes are going down. 

3. Demand Has Stayed Strong

Demand hasn’t gone away — it has shifted.  Prices in AZ have remained stable the past few years with 7%+ interest rates, the scare is, what’s going to happen when rates come down. 

People are still buying homes because:

• Many want more space and flexibility.  Below in the chart, the rise of the 4 BD home, builders would rather buy luxury than affordable homes. 

• Job markets in certain states are strong (Arizona, Texas, Florida, the Carolinas)

• Retirees are relocating for lifestyle and weather

• Remote work has expanded where people can live

• Something no one wants to talk about is the immigration problem.  Canada has the same problem, they take up the rentals, push people out, rents move up in price, than there’s more demand for starter homes and the cycle starts.  

Migration and immigration has pushed certain markets higher. The Phoenix / Scottsdale metro area is one of the strongest beneficiaries of inbound migration.

4. Interest Rates Are High — And That Changes Buyer Behavior

Higher mortgage rates reduce how much a buyer can afford.

But instead of prices collapsing, we’re seeing:

• Fewer people listing their homes (because they don’t want to lose their low 2-3% mortgage rate)

• Less inventory on the market

• Increased competition for the homes that are available

This “lock-in effect” is keeping supply extremely tight, which supports high pricing even with higher interest rates.

5. Investors and Institutions Are Active in the Market

Large investment groups and rental funds have increased their ownership of single-family homes in many markets.

What this does:

• Reduces the number of homes available to live in

• Pushes up prices when investors compete with traditional homebuyers

• Increases demand for rentals — raising rents in many markets

For investors already in the market: this creates opportunity.
For first-time buyers: this can create frustration.

6. People Are Moving to States With Better Lifestyle and Tax Advantages

States like Arizona, Texas, Florida, Nevada, and Tennessee continue to see high migration due to:

• Lower taxes

• Better weather

• Lower cost of living compared to coastal states

• Strong job growth in tech, healthcare, finance, and manufacturing

When more people move into a region than move out, prices rise.

This is one of the biggest reasons Arizona continues to see long-term upward pressure on home values.

What This Means If You’re Thinking About Buying

Waiting for home prices to “crash” is not a reliable strategy.
Inventory is still tight, and builders cannot build fast enough to fix the shortage.

However, being strategic matters:

• Buy smart, not emotional

• Look for neighborhoods with strong appreciation history.  This is possible, within Arizona there are markets like Fountain Hills and Scottsdale that will never go down but cities on the outskirts of the city like Goodyear, Buckeye, or Queen Creek offer new homes for 1/3 the price. 

• Understand long-term carrying costs (taxes, insurance, upkeep).  When buying think long term, like at least 5 years, otherwise just rent.

• Factor in refinancing later if rates fall

What This Means If You’re Thinking About Selling

You may be in a strong position, although it doesn’t feel like it.  Oh poor you, you bought 4 years ago for $500k and you have it listed for $900k and you can’t sell it.  Do you realize you have $400k in equity, this is literally the mind set of sellers right now. 

You benefit from:

• Low inventory (less competition)

• High demand for move-in-ready homes

• Strong relocation and retirement buyer activity in Arizona

Correct pricing and strong presentation (photos, video, staging) are key to maximizing your sale price.

What This Means for Investors

Supply shortages + population growth = long-term value.

Rental demand remains high in:

• Scottsdale

• Phoenix metro

• Sun Belt regions

• Areas with strong job and population growth

The key is analyzing cash flow, not speculating on fast appreciation. Unfortunately, not many homes will cash flow with the prices so high and high interest payments.  Costs are higher than cash flow. 

Final Takeaway

Home prices are high because:

1. Supply is limited, we need lower rates to give sellers a boost to move and free up inventory. 

2. Construction costs are elevated and builders want to build bigger 4 bd homes, and are sitting on 2 million lots where they’re not building. 

3. Demand remains strong and always will.  Pent up demand is waiting to explode.  Immigration, migration, not enough supply will always have upward pressure on home prices. 

4. Interest rates shifted market dynamics. Most other countries in the G7 have dropped rates, and the US is lagging. 

5. Bottom line we need more built homes in the US and especially AZ, we need smaller 3 BD affordable homes and we need interest rates to drop for affordability. 

If you want to talk strategy — buying, selling, or investing — I’ll walk you through the numbers based on your goals, budget, and timeline.

Call/Text: 480-466-4917
Website: www.JayBruGroup.com
Instagram: @jaybru_homes