The Obstacles to Buying a First Home

Summary

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Thoughts on the Market – The Obstacles to Buying a First Home

Morgan Stanley | June 23, 2026
Host(s): Jim Egan (US Housing Strategist), Sarah Wolf (Senior Economist & Strategist)

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Episode Overview

This episode explores the mounting challenges facing first-time home buyers in the U.S. Host Jim Egan and guest Sarah Wolf discuss why affordability remains at a record low despite recent rate declines, the “lock-in” effect keeping existing homeowners from selling, and why the barriers to homeownership may remain structurally high for years to come. They also examine the broader economic consequences of this housing market reset.

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Key Discussion Points & Insights

Rising Affordability Barriers for First-Time Buyers

• Historically Tough Conditions:

  • Monthly payments for a median-priced home have roughly doubled compared to a few years ago.
  • While mortgage rates have dipped from late 2023 highs, they remain far above the pandemic era (“Mortgage rates might be down...but they're significantly higher than they were for the several years before that.” — Jim Egan, 00:21).
  • The current environment makes the prospect of buying a first home “seem insurmountable” for many.

• Market Ripple Effects:

  • The difficulty for first-time buyers stalls the entire housing market transaction chain, reducing turnover and activity in both sales and related sectors (e.g., renovations, moving, furniture) (01:13).
  • More would-be buyers remaining renters boosts pressure on rental market demand (01:21).

Is This a Temporary Squeeze or a Structural Reset?

• Wolf’s Viewpoint:
  • “We do think that the housing market is resetting at a structurally higher barrier to entry.” — Sarah Wolf (01:32)
  • Factors driving this shift include:
    • Sustained higher mortgage rates: Even in optimistic forecasts, rates unlikely to drop below 5.5%; likely to settle above 6%.
    • Demographic pressures: Baby boomers' children now entering peak buying years, stoking demand (01:45).
    • Land regulation & permitting: Persistent, difficult-to-change local and state restrictions.
    • Climate risk: Increased insurance costs, growing difficulty in certain regions.
  • Net Result: “Those forces are going to widen the divide between who can own a home and who cannot, and who gains from that wealth accumulation and who does not.” — Sarah Wolf (02:36)

Why Mortgage Rate Relief Didn’t Boost Sales

• Brief Dip Below 6%:
  • In February 2026, mortgage rates briefly dipped under 6%, which reduced monthly payments for new buyers (from about $2,200 to $1,900), and the share of income spent on payments (from 26% to 22%) (03:07).
  • “It didn’t make that much of a difference...it did not drive people back into the housing market.”— Sarah Wolf (03:23)
  • Affordability remains far too stretched for most buyers even with rate relief.

The “Lock-in” Effect on Homeowners and Inventory

• Defining Lock-in:

  • Many owners locked into pandemic-era rates (2–3%) are unwilling to move to new rates above 6%, resulting in very low inventory (04:08, 07:23).
  • For those who purchased and refinanced between 2016 and 2021, moving today could mean a monthly payment increase of $1,300–$1,400—a ~200% jump (05:10).
  • The “physical manifestation” of lock-in is a dramatic pullback in homes for sale and extremely low turnover (05:23).

• Quote:

  • “The fewer homes there are for sale, the more upward pressure or the absence of downward pressure that's going to put on home prices.” — Jim Egan (07:36)

How Buyer Profiles—and Locations—Are Changing

• Wealthier, More Selective First-Time Buyers:
  • First-time buyers are still about 36 years old but are “a much more selective group financially” (05:35).
  • Mortgages for these buyers now average $350K (vs. $200K a decade ago).
  • Credit standards tightened: Higher average credit scores required than in previous years.
  • Increasingly, family support is crucial—especially parents assisting with down payments (06:42).
  • Higher-income buyers are purchasing in lower-income metro areas, demonstrating a “demand resorting story” (06:08).

Vicious Cycle: Affordability, Inventory, and the Rental Market

• Low Inventory = Higher Prices:

  • Stuck homeowners mean little inventory, which props up prices even as overall sales decline (07:36).
  • “It's really this vicious cycle of the locked in effect making it difficult for entry level buyers to get into the market.” — Sarah Wolf (08:31)

• Spillover to Rentals and the Economy:

  • Difficulty in buying keeps renters “stuck,” pushing up rent demand (09:01).
  • Wolf notes broader impacts:
    • “Housing affordability is the number one driver pushing down fertility rates in America. The number one driver above childcare Costs above finding a partner, finding a good job. It's housing affordability.” — Sarah Wolf (09:32)
    • Promotes migration from expensive to affordable regions, shifting labor patterns and local economies.
    • Expanding renter population affects consumer behavior: more services, fewer durable goods purchases tied to homeownership.

Outlook: Little Relief in Sight

• Forecasts (Morgan Stanley Research & Strategy):

  • Mortgage rates likely remain above 6% through at least end of 2027 (10:43).
  • Slight marginal improvement in affordability expected, as income growth may slightly outpace home price appreciation (11:00).
  • Full return to post-financial crisis affordability unlikely; any relief limited (11:07).
  • Home sales and prices projected to see minimal growth (1–2% annually), with little room for prices to climb higher (11:54).

• Implication for Buyers:

  • The critical question is shifting: “The key question is becoming less about when to buy, more about who can still afford to enter the market.” — Jim Egan (12:03)

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Notable Quotes & Memorable Moments

• “Those forces are going to widen the divide between who can own a home and who cannot, and who gains from that wealth accumulation and who does not.” — Sarah Wolf (02:36)

• “It didn’t make that much of a difference...it did not drive people back into the housing market.” — Sarah Wolf on the February rate dip (03:23)

• “Your payment is probably 13 or $1,400 higher. It's like a 200% increase. That's very difficult economically for a lot of households. And that's the kind of physical manifestation of that lock-in effect.” — Jim Egan (05:12, 05:25)

• “Higher quality home buyers moving to lower income zip codes, so buying cheaper homes in lower income metro areas...that's the really big shift that we're seeing. It's a demand resorting story.” — Sarah Wolf (06:08)

• “Housing affordability is the number one driver pushing down fertility rates in America. The number one driver above childcare Costs above finding a partner, finding a good job.” — Sarah Wolf (09:32)

• “We think we've found that level...there’s support for home sales at these current levels. And that combination of support for home sales, lack of inventory, means that home prices—very little room for them to grow from here, but we think they're going to be pretty supported.” — Jim Egan (11:41–11:56)

• “The key question is becoming less about when to buy, more about who can still afford to enter the market.” — Jim Egan (12:03)

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Timestamps for Key Segments

• 00:21 — Current affordability strains and why homeownership feels out of reach
• 01:32 — Structural, long-term changes and higher barriers to entry explained
• 03:07 — Why a minor drop in rates made “very little difference” to first-time buyers
• 05:10 — Lock-in effect quantified: payment increases for would-be movers
• 06:08 — Changing first-time buyer demographics and geographic trends
• 07:23 — Lock-in’s impact on inventory and home prices
• 08:31 — The vicious cycle trapping renters and upward pressure on rents
• 09:32 — Economic fallout: fertility rates, migration, impact on spending patterns
• 10:43–11:56 — Morgan Stanley’s housing market and affordability outlook
• 12:03 — Closing thoughts: “who” can buy, not “when”

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Summary Table

| Segment | Key Theme/Takeaway | Timestamp | |----------------------------------|------------------------------------------------------------------|------------| | The Affordability Squeeze | High payments, slow turnover, market pressure | 00:21 | | Market Reset Factors | Rates, demographics, regulation, climate impacts | 01:32 | | Mortgage Rate Relief Impotence | Minor rate drops insufficient; deep unaffordability persists | 03:07 | | Quantifying Lock-in | Huge payment jump for existing owners considering a move | 05:10 | | Buyer Profile & Migration | Wealthier, older buyers with family help; shifting locations | 06:08 | | Inventory & Price Dynamics | Low turnover sustains high prices | 07:23 | | Economic Consequences | Rental pressure, economic and demographic ripple effects | 09:32 | | Near-Term Outlook | Marginal improvement, structurally higher barriers remain | 10:43–12:03|

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This episode provides a concise yet comprehensive overview of the entrenched challenges barring new entrants from homeownership and details why these issues are unlikely to dissipate soon. The conversation is factual and analytical, rooted in data and recent research, articulating the broader societal and economic implications with clarity and urgency.

Transcript

[A]

Welcome to Thoughts on the Market. I'm Jim Egan, Morgan Stanley's US Housing Strategist and co head of Securitized Products Strategy.

[B]

And I'm Sarah Wolf, Senior economist and strategist within Morgan Stanley Wealth Management.

[A]

And today, why first time home buyers

[C]

are facing a tougher path to ownership? It's Tuesday, June 23rd at 10:00am in New York.

[A]

Buying a first time home has always

[C]

been a big step, but for a growing number of first time buyers today, the goal can really seem insurmountable. Mortgage rates might be down from where they were in the second half of 2023, but they're significantly higher than they were for the several years before that. Monthly payments have roughly doubled for a median priced home. And my colleague Jay Bacow and I have talked several times on this podcast

[A]

about how many homeowners feel like they're locked into those lower rates and they're staying put because they just don't want

[C]

to give up a two or three handle mortgage rate for something that has a six in front of it. But Sarah, as we know, this is bigger than just first time buyers now. They often start the housing transaction chain and when they can't buy, current owners

[A]

may not be able to sell and trade up.

[C]

That slows turnover across the market and

[A]

it also reduces activity tied to housing

[C]

from mortgages and renovations to moving and furniture.

[A]

And it can keep would be buyers

[C]

renting for longer, which adds pressure to rental demand.

[A]

So how do you see this situation? Is this just another affordability squeeze or has the housing market reset to a

[C]

higher barrier to entry?

[B]

I do think that we're on the upper bound of affordability pressures. This is about as bad as it's going to get. But as we discussed in our recent publication of the Economy Explained, unfortunately we do think that the housing market is resetting at a structurally higher barrier to entry. There's a lot of reasons for that. The first is higher interest rates. Yes, mortgage rates are sitting around 6.5% and they should come down from here, but but maybe not better than 5.5% right in an optimistic scenario. The second is demographic pressures. Remember we have this tremendous aging population of baby boomers. All of their children are now entering their prime home buying year. So there's a lot of demand for ownership. The third and fourth ones are land regulation and permitting which is at the state and local level, really hard to change. And the last one is climate risk. It's just raising insurance pricing and making it much more difficult to buy a home. So overall we see a World where yes, mortgage rates come down a bit, improve affordability marginally, but we think neutral and other interest rates at the longer end of the curve are going to be higher than the post financial crisis period. And what we're going to see is that those forces are going to widen the divide between who can own a home and who cannot, and who gains from that wealth accumulation and who does not.

[C]

All right, so now you mention where mortgage rates are today above that 6% rate rates did briefly in February. We got below 6% before they bounced back up here. Why did that short lived relief matter so much?

[B]

I think that short lived relief showed us that moves in the mortgage rate make a difference, but things are so unaffordable that it didn't make that much of a difference. So the dip below 6% was very exciting. It happened this past February. It was the first time that mortgage rate fell below 6% since 2022. And we saw a few things happen. First, it lowered the monthly payment for first time home buyers from about $2.2K a month to $1.9K. So makes a bit of a difference. And it lowered the share of income that goes towards monthly mortgage payments from about 26% of income to 22% from peak to trough. So that is a notable improvement. But what we saw in the new home sales data and the existing home sales data, that it did not drive people back into the housing market. I want to turn it back to you though, Jim, because you've actually done a lot of interesting work on this and how this change in mortgage rates has changed the monthly cost that people have to pay for a median priced home. Can you tell us a little bit more?

[A]

Sure. So we talk about the lock in

[C]

effect a lot and it's kind of easy to point to.

[A]

Well, there are a lot of people with mortgage rates that are around 3% or 3 and a half percent and the prevailing rates at 6% and that's a lot higher.

[C]

So they're locked in.

[A]

But when we look at the actual

[C]

numbers in terms of what we're asking a homeowner to do, to list their home for sale and move to another home today, pay off that existing mortgage, take out a new one.

[A]

When you take into account how much

[C]

higher home prices are today. You bought a home in 2016, for instance, right.

[A]

Let's assume you refinanced in 2020 or 2021, if you still live there. Right. Most homeowners did. So you've actually taken your monthly payment and it is lower today than it

[C]

was when you bought your home in 2016.

[A]

If we assume that your income has risen alongside just median household income over that time period, your monthly payment as a share of your income today is probably sub 8%. If you bought over the past three years, your monthly payment as a share of your income. You mentioned some numbers earlier. It's low to mid 20%. From a dollar amount perspective. If you were to pay off that

[C]

2016 mortgage, as an example, and take

[A]

out one today, your payment is probably 13 or $1,400 higher. It's like a 200% increase. That's very difficult economically for a lot of households. And that's the kind of physical manifestation

[C]

of that locket effect.

[A]

Now, Sarah, given this significant change in housing math, what does that mean for

[C]

who is actually able to buy in this market?

[B]

It's making who's able to buy into the market a lot more selective. So what we're seeing is that first time home buyers today are actually not meaningfully old. They're still about 36 years old, but they are a much more selective group financially. The Federal Reserve bank of New York put out a great analysis on this recently. And they basically found that the first time home buyer profile today is taking out a mortgage that's nearly $350,000 compared to $240,000 in 2019 and $200,000 a decade ago. So significant increase in mortgage balances. At the same time, credit standards have tightened significantly. So that average credit score to get a mortgage has risen quite a bit over the last five to 10 years. And what this is doing is it's shifting who can buy and also where they can buy. So we're seeing higher quality home buyers moving to lower income zip codes, so buying cheaper homes in lower income metro areas. And so it's wealthier buyers in lower income areas. And that's the really big shift that we're seeing. It's a demand resorting story. And what we're also seeing, and we hear this a lot when we talk to our financial advisors and their clients, is that family is increasingly helping their other family members put that down payment down. In particular parents helping their children buy that first home. So we're seeing that first time buyers may be feeling this pressure right when it comes to rates. How much of this affordability issue though, is being driven by the locked in effect specifically?

[C]

So look, it's clearly playing a role. We just talked about some of the math behind that.

[A]

But then when you look at what that means on a nationwide basis when it comes to Inventory. When it comes to so many other aspects of this, that homeowner who's unwilling

[C]

to give up that lower mortgage rate, that lower payment, right.

[A]

Their homes are off the market. Existing inventories for sale, they've picked up

[C]

from historic lows in 2023, but they're still very, very low on a long run basis.

[A]

The fewer homes there are for sale, the more upward pressure or the absence of downward pressure that's going to put on home prices.

[C]

Right. We saw affordability plummet in 2022 and 2023 when rates backed up.

[A]

We saw existing home sales really, really come down as a result. But home prices remained at record highs. They continued to set new record highs. For home prices to actually come down, right, you, you need people who are willing to sell at lower home prices. Sarah, you just mentioned that lending standards themselves remain tight. Those forced sales, those tend to be distressed transactions. We don't see that distress in the market providing the inventory and the motivated inventory to lead to softer home prices. So it's really that lack of inventory

[C]

which we think is in large part

[A]

driven by the lock, in effect that's kept home prices. And as a result, that piece of

[C]

the affordability equation kind of stuck at these higher levels.

[B]

I mean, it's really this vicious cycle of the locked in effect making it difficult for entry level buyers to get into the market. And then fewer existing homeowners sell or trade up or relocate. So on and on it goes. Are there broader implications of this freeze?

[C]

Right, so we just talked about what that means from an inventory perspective. And then if you think about affordability remaining challenged, lending standards themselves remaining tight,

[A]

inventory remaining as low as it is, you could argue that we're at one of the more difficult times that we've

[C]

seen for renters to exit rentership and step into homeownership. Now, there's a lot of different things that drive rent growth, and the fact that you have a stuck renter is

[A]

just one of them.

[C]

The other side of that equation can be the supply of rental units. Right.

[A]

So that's just a piece of the equation.

[C]

But those are some of the externalities that we think about when it comes to how the tightness of the housing market, what the lock in effect and what affordability is doing there. But outside of the housing market, Sarah, the wider economy, like how do these housing costs play a role there?

[B]

Massive effects. Some of the work that we've done shows that housing affordability is the number one driver pushing down fertility rates in America. The number one driver above childcare Costs above finding a partner, finding a good job. It's housing affordability. So you could see how that could pretty significantly ripple through the broader economy. But there's other components, right? So as we discussed earlier, it's driving migration from unaffordable areas to more affordable regions that has significant implications. And then putting my consumer economist hat on, as we discussed earlier in the podcast, when people buy a home, they tie themselves to that home. They spend money on couches, on beds, on TVs, right? Durable goods. And if we're going to have more people as renters for longer, that's going to expand the services economy at the expense of, of the goods economy. All right, let's take a step back and think about where this is all going. It hasn't been a very optimistic conversation. Jim, what is the outlook for affordability in your view? Do we get anywhere back to the post financial crisis period or even the pre financial crisis period when it comes

[C]

to the outlook for mortgage rates, the outlook for affordability, the outlook for the US Housing market. Look, we just throughout Morgan Stanley Research and Strategy published our 2026 major outlook. From now through the end of 2027, we don't have conventional mortgage rates getting below 6%.

[A]

We do have affordability improving on the margins. We have income growth exceeding home price appreciation. That makes it a little bit better.

[C]

But that doesn't get us back to the post GFC affordability era, which was very, very affordable. Looking back over the past several decades, it gets us closer to where we were pre gfc.

[A]

Not all the way back there, but when we think about how that ripples

[C]

through the housing market and how we think about that evolving from here. Look, we do think that the state of mortgage credit availability means there will be a lack of distress. We think that while affordability itself may be challenged and inventories may be low, there is some level of housing activity that has to occur regardless of where mortgage rates are or affordability is. We think we found that level. We think there's support for, for home sales at these current levels.

[A]

And that combination of support for home sales, lack of inventory, means that home prices very little room for them to grow from here, but we think they're

[C]

going to be pretty supported.

[A]

So from a housing market perspective, at a 10,000 foot view, we're calling it 1 to 2% growth in sales in home prices.

[C]

Well supported. But the affordability outlook that we've outlined throughout this podcast challenged to see a lot of acceleration. Now when we pull it back to the first time homebuyer Based on our conversation, it seems that the key question is becoming less about when to buy, more about who can still afford to enter the market. But Sarah, it's really been great talking with you about the housing market today.

[B]

It was great speaking with you, Jim,

[C]

and thanks for listening.

[A]

If you enjoy thoughts on the market, please leave us a review wherever you listen and share the podcast with a

[C]

friend or colleague today.

[D]

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