Stuck at the Start

Buying your first home has long been a milestone of adulthood. So has selling your first home and moving into something bigger. But in the last few years, many Americans have gotten stuck in their starter house.

That’s because the U.S. housing economy is being hammered by three forces: the highest interest rates in around two decades, record home prices and near rock-bottom inventory. “Home affordability is the worst I’ve ever seen it,” Daryl Fairweather, Redfin’s chief economist, told me.

Many of those who bought their homes in recent years are unable to trade up, hampering the ability of the group behind them to purchase its own starter homes. In today’s newsletter, we’ll look at how the housing market trapped both groups.

Twice as expensive

In the past, the starter home served as a bridge: Families just starting out would squeeze into a smaller home and build equity. With time, as their careers grew and their incomes increased, they cashed in the equity and moved to something bigger.

But now that process has hit a wall. “The trade-up buyer has just disappeared,” Sam Khater, chief economist of Freddie Mac, said.

A majority of homeowners — six out of 10 — have mortgages with interest rates that are locked at 4 percent or lower. With rates now hovering around 7 percent, most people who buy a home today will pay much more interest on their new mortgage.