It’s no secret that housing is expensive, but what’s less obvious is the growing financial gap between existing homeowners and those looking to gain a foothold in the market.
Since the COVID-19 pandemic, the U.S. housing market has split in two, mirroring the broader K-shaped economy. On one side are first-time buyers, who are paying a record premium to enter the market; on the other, existing homeowners, whose housing costs – as a proportion of income – are at near record levels.
At first glance, it’s not surprising that new homeowners, who tend to be younger and younger in their careers, are expected to spend more of their income on housing costs as they deal with today’s high home prices and mortgage rates, leading to higher monthly payments.
But according to a new study from the Economic Innovation Group, a bipartisan public policy organization based in Washington, D.C., what does that mean? East What’s surprising is that “entry costs” for first-time buyers have skyrocketed since 2020, creating a staggering cost disparity.
Jess Remingtonresearch analyst at EIG and author of the analysis, writes that the nearly 7 percentage point difference between the two groups is the largest in nearly 40 years.
Remington points out that while new homeowners spent 28% of their income on housing at the height of the housing bubble in 2007, the gap with existing homeowners was narrower then, at just 4 percentage points.
“Even at the height of this century’s other housing affordability crisis, the burden of housing costs was less unequal,” the analyst writes.
This dynamic helps explain why homeownership among young Americans has been on a downward trajectory for decades.
A March 2025 Urban Institute analysis found that the homeownership rate among 35- to 44-year-olds has fallen more than 10 percentage points since 1980.
Meanwhile, the National Association of Realtors® reported last year, based on survey data, that the median age of first-time buyers had increased to 40, the highest on record.
New buyers spend a much higher share of their income on housing than existing homeowners.
Experts agree that the biggest factor behind the widening affordability gap between new and existing homeowners is the stark difference in borrowing costs.
“Mortgage rates continue to be significantly higher than pandemic-era lows, driving up monthly payments, while high rents make it harder to save for a down payment. » Nadia Evangélousenior economist and director of real estate research at NAR, told Realtor.com®. “This has widened the gap with existing homeowners, who are stuck with much lower rates and house prices.”
According to a recent analysis of real estate data from Realtor.com, more than half of outstanding mortgages in the United States are locked into interest rates below 4%.
As a result, many existing homeowners don’t want to move because they don’t want to trade their ultra-low rates for current rates in the 6% range. This lack of mobility keeps inventory tight and pushes home prices even further out of reach for first-time buyers.
Notably, Realtor.com Senior Economist Jake Krimmel points out that a growing number of existing homeowners do not have a mortgage, either because they bought outright or have paid off their loan.
Beyond access costs, the yawning chasm between new and existing homeowners is also fueled by the trajectory of house prices.
“Existing homeowners bought at lower prices and took out smaller mortgages,” Krimmel says. “And whether they bought when rates were low or refinanced down, their mortgage payments are far lower than anything new homeowners or potential buyers could even imagine paying.”
The economist explains that this persistent payment gap keeps the “lock-in effect” in place, choking off supply – particularly in the inventory-starved Northeast and Midwest – and maintaining upward pressure on prices. The result is what Krimmel calls a vicious cycle of high prices, high rates, low inventory and low affordability.
“This is bad news for both potential first home buyers and existing homeowners who would prefer to move,” he adds.
President Donald Trump has touted cutting mortgage rates as a way to solve the affordability crisis, but data shows that approach could backfire. (ANDREW CABALLERO-REYNOLDS / AFP via Getty Images)
President Donald Trump and its allies on Capitol Hill have focused on lowering mortgage interest rates as a way to solve the affordability crisis, but Remington says that approach could make the situation worse, especially for first-time buyers.
According to his analysis, a rate cut would trigger a surge in buyer demand, which would trigger bidding wars, driving up house prices.
For example, from 2019 to 2021, mortgage rates fell by approximately 25%. Yet many new homeowners haven’t seen their monthly payments go down, as rapidly rising home prices have wiped out much of the benefit. Existing homeowners have generally benefited from lower rates through refinancing and lower interest costs. But for many new buyers, falling rates helped fuel rising prices, keeping their monthly payments high instead of making housing significantly more affordable.
Rate cuts would likely help existing homeowners refinance at lower rates, but are unlikely to significantly reduce entry costs for new buyers.
Instead, Remington, Evangelou and Krimmel all agree that the only effective way to make housing more affordable for new buyers is to build more of it.
“The story always comes back to supply: new construction in high-demand locations is the silver bullet,” says Krimmel. “But it will take time. So I don’t expect the gap to close anytime soon.”
Evangelou adds that it’s important to not only speed up new construction, but also to do so at prices that buyers can afford.
“Without more inventory, affordability pressures will persist,” warns the NAR economist. “Policies that reduce barriers to construction and expand incentives for builders can help.”
In the short to medium term, Evangelou says encouraging existing homeowners to sell, for example through capital gains tax incentives, could boost supply faster than new construction.
Despite stubborn affordability constraints, homeownership remains the cornerstone of wealth creation, resulting in resilient demand even in the face of high prices and interest rates, Krimmel says.
Homeownership provides physical, financial and emotional stability compared to renting, allowing families to plan for the future.
“What’s difficult right now is that the stability that comes with owning a home comes at a very high cost, meaning it’s out of reach for many,” says the economist.
Evangelou points out that homeowners build equity with each mortgage payment and benefit from long-term price appreciation. They also benefit from more predictable housing costs over time, including fixed-rate mortgages.
