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Just married and with a newborn son, Anthony and Caitlin Fumo expected their well-paying jobs and chunk of savings to support a move closer to their parents in the suburbs of New Jersey.

But leaving their 1,000-square-foot Philadelphia rowhome means borrowing with rates around 7%—to buy in a market where the typical home value has jumped 40% since the start of 2020. Their 3.85% mortgage costs $1,500 a month. They are looking at payments of around $4,000 if they move.

Friends who scooped up their forever homes during the pandemic refinancing boom, meanwhile, are able to raise multiple children and support a long-term mortgage comfortably, said Anthony, a 31-year-old accounting consultant. A longtime rule of thumb in American homeownership—buy a starter home, then move up to a bigger place—doesn’t feel like it works anymore.

“It feels like we make too much money to still feel like we’re behind,” Anthony said. Missing the huge repricing “affects all my decisions.”

America has come to expect ever-higher prices on houses, stocks and a swath of other financial assets. Civic leaders and corporate executives routinely praise rising home prices and rallying stocks as signs of widespread economic well-being.

But those rising asset prices are wedging an increasingly large gap between the wealth of older generations and their children and grandchildren. The gains are heavily concentrated in older Americans who are already homeowners and who invested many years ago when prices were lower.

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Home-buying affordability fell last year to the lowest level since 1985, according to a National Association of Realtors index. The median household now needs more than 40% of its income to cover payments on a median-priced home, according to the Federal Reserve Bank of Atlanta.

Hopes that the Fed would cut interest rates helped lower mortgage rates and unlock the housing market for a few months, but stubborn inflation has sent rates back above 7% and home sales sliding.

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The Fed supported the housing market for years after the 2008 financial crisis, scooping up trillions of dollars worth of bonds backed by home mortgages. Easy financing conditions helped many Americans get their start into adulthood, while older homeowners benefited from rising prices.

Now, the central bank is running down its portfolio of mortgage-backed securities, helping keep mortgage rates high. But the typical accompanying drop in prices hasn’t happened.

A yearslong decline in housing construction has constrained the supply of houses, propping up prices. Homeowners who refinanced when the Fed slashed rates near zero during the Covid-19 pandemic don’t want to give up their 3% mortgages. A surge in immigration has increased the number of families looking for homes.

Until demand slows or supply increases, home prices will continue to climb. The Fed is still on its front foot trying to tame inflation, meaning mortgage rates are primed to remain expensive.

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Many Americans say they are fortunate to have built their wealth during years when asset prices multiplied, or rates were lower.

Chris Landeck is doing great, despite the high-rate economy. He is worried, though, that the cost of living is crippling for those with few, if any, assets.

A retired petroleum engineer in Brenham, Texas, Landeck paid off his first mortgage long ago. He has also helped his adult children manage their mortgage expenses to pay off the principal as soon as possible. He hammers home the need for frugality and low debt considering how high rates have climbed. He wouldn’t dream of borrowing money now.

“People are seeing prices jumping all around them, but then they turn on the TV and see the stock market at all-time highs,” said Landeck, 68. “That doesn’t offset that dinner costs far more now than it did a few years ago.”

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Count me amongst those who refinanced during COVID. My industry was seeing salaries and day rates getting heavily slashed from about March 2020 to almost the end of that year. My interest rate is now so incredibly low, that while we talk about trying to get closer to our aging parents, if these current rates remain, I'd basically have to hope for a big sale so I can try to pay cash for the next home, which will be downsized, but we would like to have really nice things like outdoor kitchen, etc.

But when you think about it, the current 7% to 8% if what 80s and early 90s babies' parents were used to as the norm.

This post was edited on 4/27/24 at 8:27 am