America’s Two Housing Markets, and What Congress Is Trying to Do About Them

About a year and a half ago, after we found out we were expecting, Lizy and I began a journey almost everyone is familiar with: trying to figure out where, exactly, we were going to raise a growing family.

We would have loved to stay where we were. It was familiar, comfortable, and already felt like home. But once we started looking honestly at the space, the layout, and everything that comes with adding a child to the equation, it became pretty clear that making it work long term was going to be difficult. Babies may be small, but they come with an impressive amount of furniture, equipment, laundry, and general logistical chaos.

So, like many couples before us, we started looking at neighborhoods, school districts, commute times, square footage, and all the other things that suddenly feel much more important when you are no longer making decisions for just two people.

Life rarely happens in a straight line, and ours certainly has not. Our young adult years took a few winding roads before eventually leading us to each other and, not long after, to the daughter we are both completely obsessed with. In a perfectly organized world, maybe we would have met earlier, spent a few more years together, and made our housing decisions five or six years ago when home prices were lower and mortgage rates were roughly the financial equivalent of a clearance sale.

That would have been convenient.

But life does not usually consult an interest-rate chart before deciding when the important things should happen.

The timing worked out exactly right for us personally, even if it was less than ideal financially. I would not trade the path that brought us together or the timing of our daughter for a cheaper mortgage. Still, when it came time to buy a home, there was no avoiding the fact that we were entering one of the most expensive housing markets in recent memory.

By then, home prices had risen substantially, borrowing costs were much higher, and the monthly payment attached to a house had changed dramatically. We were fortunate to be in a financial position that gave us options, but even with those options, we had to reset our expectations.

The home we bought was not our dream home, at least not in the way people usually imagine that phrase. It did not check every box, and there were certainly things we would have designed differently if we had been building from scratch with an unlimited budget and no relationship with reality.

But it was in the right neighborhood.

It was surrounded by young families, parks, sidewalks, kids playing outside, and the kind of community we wanted our daughter to grow up in. It gave us room to settle in, build routines, meet neighbors, and start creating the kind of life we had pictured, even if the house itself was not the final version of that picture.
Looking back, it has proven to be a great decision.

That experience also gave me a much more personal appreciation for what younger homebuyers are dealing with today. The challenge is not simply that mortgage rates are higher. It is that buyers are often paying significantly more for the same type of home than someone may have purchased just a few years earlier, while also financing it at a much higher rate.

One of the strangest things about today’s housing market is that two families can live in nearly identical homes, on the same street, and have completely different financial experiences.

One family bought several years ago, when home prices were lower and mortgage rates were hovering around 3%. The other is trying to buy today, after prices have risen substantially and borrowing costs have more than doubled.

The house may look the same. The monthly payment certainly does not.

Consider a home that sold for $400,000 in 2020. Based on the increase in national home prices since then¹, that same home could reasonably cost somewhere around $600,000 today. The exact number would vary widely by location, but the broader point remains the same: today’s buyer is not simply financing the same $400,000 house at a higher interest rate. They are often financing a much more expensive version of it.

Assume the earlier buyer purchased the home for $400,000, put 20% down, and financed $320,000 at 3%. Their principal and interest payment would be approximately $1,350 per month.

Now assume the home costs $616,000 and today’s buyer also puts 20% down. They would finance roughly $493,000 at a rate near 6.5%, producing a principal and interest payment of about $3,115 per month.

That is nearly $1,800 more every month for essentially the same house. It is more than $21,000 a year before accounting for higher property taxes, insurance premiums, maintenance costs, or the inevitable trip to Lowe’s where a “small weekend project” somehow requires a second cart and a second mortgage.

That difference has created two very different housing markets.

On one side are homeowners who purchased or refinanced before 2022. Many have low fixed mortgage payments, significant home equity, or no mortgage at all. Nearly 40% of homeowners own their homes free and clear², while a large portion of borrowers continue to carry mortgage rates of 4% or less.

For those households, housing has acted as a powerful shield against inflation. Groceries became more expensive. Insurance became more expensive. Travel, restaurants, cars, and childcare all became more expensive. But their largest monthly expense remained largely fixed.

That stability has helped support consumer spending, which remains one of the primary engines of the broader economy³.

A homeowner who is not sending an additional $1,000 or $1,500 a month to a mortgage company can spend that money somewhere else. It may go toward vacations, restaurants, home renovations, cars, college savings, or investment accounts. It may help pay for childcare or allow an adult child to remain on the family payroll a little longer than originally anticipated.

It also provides breathing room. As wages have risen, many homeowners’ mortgage payments have not. That has allowed millions of households to keep spending despite higher inflation, elevated interest rates, and years of predictions that the consumer was about to run out of gas.

In a strange way, the 3% mortgage has operated like a small economic stimulus program that never required an act of Congress.

But that advantage has another side.

The same low payment that gives an existing homeowner more disposable income also makes that homeowner reluctant to sell. Moving could mean giving up a 3% mortgage, purchasing a more expensive home, and financing it at more than twice the interest rate. Unless a job change, divorce, growing family, or other major life event forces the issue, staying put often makes financial sense.

That keeps existing homes off the market.

On the other side are younger buyers trying to enter for the first time. They are paying today’s prices with today’s interest rates while competing for a limited number of available homes. They may have good careers, strong incomes, and responsible savings habits, yet still feel as though homeownership keeps moving farther away.

Housing has always been influenced by location, income, and personal circumstances. Increasingly, it has also been influenced by timing and a healthy dose of luck.

Someone who bought in 2020 may have benefited from rapid appreciation, a historically low mortgage rate, and several years of wage growth. Someone just a few years younger may have spent that same period diligently saving for a down payment, only to arrive after prices climbed and borrowing costs doubled.

One household’s economic tailwind has become another household’s barrier to entry.

That is the backdrop for the 21st Century ROAD to Housing Act, a major housing package Congress passed a few weeks ago with broad bipartisan support that currently sits on the president’s desk for approval. In Washington, that qualifies as something of a minor miracle. Apparently, housing has become so expensive that even Congress could agree there is a problem.

Despite the ambitious name, the bill will not make homes affordable overnight. There is no lever in Washington that can instantly lower mortgage rates, create millions of starter homes, or convince someone with a 3% mortgage to put their house on the market.

The bill instead focuses primarily on the slower, less exciting, but ultimately more important problem: America needs more housing.

It attempts to speed up certain federal reviews, encourage communities to simplify zoning and permitting, support the conversion of vacant buildings into homes, and expand modular and manufactured housing. It also creates incentives for communities willing to approve more construction rather than treating every proposed duplex like an invading army.

The logic is straightforward. When there are too many buyers and too few homes, prices tend to rise. Adding supply will not reverse years of appreciation, but it can create more choices and reduce some of the pressure over time.

The bill also restricts additional purchases of certain single-family homes by large institutional investors controlling at least 350 properties.

That provision has received plenty of attention, but its impact will vary by market. Institutional investors own only about 3% of single-family rental homes nationally, but their presence is considerably larger in certain markets, particularly Sun Belt cities such as Atlanta, Jacksonville, and Charlotte⁴.

The provision does not force investors to sell homes they already own, and it contains exceptions for newly constructed rental communities, substantial renovation projects, foreclosures, and certain other properties. For a buyer in a market with significant institutional activity, the restriction could reduce some competition. For a buyer elsewhere, it may make little noticeable difference.

Younger buyers may also benefit from a proposed FHA pilot program focused on mortgages of $100,000 or less. The program could help lenders make smaller loans and potentially provide support for expenses such as down payments, appraisals, closing costs, and title insurance.

That may sound like a small part of a very large bill, but it addresses a real problem. An $80,000 mortgage can require nearly as much work from a lender as a $500,000 mortgage while generating considerably less revenue. As a result, financing an inexpensive home can sometimes be surprisingly difficult.

The bill may improve that process, particularly in smaller towns and lower-cost communities. But these programs still have to be designed, funded, and implemented. Buyers should not assume that a federal check will be arriving in time for next weekend’s open house.

For many families, however, the housing challenge is not just something being debated in Washington. It is already becoming a conversation around the dinner table.

A child or grandchild has a solid career, earns a respectable income, and has been saving consistently. They are doing many of the things they were told to do, but buying a first home still feels difficult. Parents and grandparents naturally begin wondering whether they should help.

The first step is not deciding how much money to provide. It is understanding what the younger buyer is trying to accomplish.

Do they expect to remain in the area for several years? Are they buying because they are financially and personally ready, or because they feel behind? Have they considered the full monthly cost, including taxes, insurance, repairs, utilities, and maintenance? Would assistance allow them to buy a sensible home, or merely stretch into a more expensive one?

These are not questions meant to discourage someone from buying. They are meant to make sure the family is solving the correct problem.

Once the goal is clear, there are several ways a family can help.

The most obvious option is a direct gift toward the down payment. That can reduce the mortgage, eliminate private mortgage insurance, or help the buyer compete more effectively. A gift can be simple, but everyone should understand that it is truly a gift and not a loan that will quietly reappear during the next family disagreement.

Another option is helping with closing costs, inspections, moving expenses, or immediate repairs. This may not sound as exciting as presenting someone with a large down-payment check, but it can preserve the buyer’s emergency savings after closing. Getting into the house is only the first step. The water heater is under no obligation to respect the timing of the purchase.

Families can also create a matching arrangement. Parents might agree to contribute one dollar for every dollar the child saves up to a certain amount. That provides assistance while keeping the younger buyer engaged in the process and may create a more natural timeline for the purchase.

An intrafamily loan can also make sense. Parents or grandparents can lend money for part of the down payment or even act as the mortgage lender themselves. These arrangements should be properly documented, include a reasonable interest rate, and clearly define repayment terms. Treating it casually because everyone loves one another is usually how a simple loan becomes a complicated Thanksgiving.

Some families may prefer to purchase the property together or provide capital in exchange for an ownership interest. That can give the younger buyer access to a better home while allowing the older generation to participate in future appreciation. It also requires a written agreement covering expenses, improvements, a future sale, and what happens if the child gets married, relocates, or wants to buy out the family’s interest.

Co-signing is another possibility, but it should be approached carefully. A co-signer is not serving as an encouraging reference. They are legally responsible for the debt if payments are missed, and the mortgage can affect their own borrowing capacity. In many situations, a gift or formal family loan produces a cleaner arrangement.

There is no universally correct way to help. The right structure depends on the family’s resources, relationships, tax situation, and expectations. The more important point is that those expectations should be discussed before money changes hands.

Is the assistance a gift, a loan, or an investment? Does anyone expect repayment when the home is sold? Will future assistance be offered to siblings? What happens if a partner moves into the home or contributes to the mortgage? Who pays for a major repair? What happens if the home falls in value?

These conversations may feel overly formal when everyone is getting along. That is precisely when they are easiest to have.

The purpose of planning is not to turn a generous family gesture into a corporate merger. It is to make sure generosity remains generosity and does not become a source of confusion or resentment later.