Homeownership has long been a cornerstone of the American dream — and the most dependable way to build wealth. You buy a starter home, pay down the mortgage and let appreciation raise your net worth over time.
But the conditions that made that dream possible have shifted. For buyers who aren’t already ahead financially, the old model simply doesn’t work the way it used to.
Homeownership can still build wealth, but the barriers to getting in are higher than ever. Here’s what’s driving the shift — and how you can adapt.
Why the old homebuying playbook doesn’t work anymore
Homeownership can still build wealth, but the barriers to getting in are higher than ever. Here’s what’s driving the shift — and how you can adapt.
1. Mortgage rates have doubled
Interest rates have raised the cost of entry for many would-be homebuyers. A $400,000 loan at 3% costs about $1,686 a month, not counting taxes or insurance. At 7%, that same loan — nearly $1,000 more, with nothing added but interest. While that kind of payment is challenging for higher-income households, it’s downright prohibitive for everyone else.
Unlike rent, homeownership locks you into decades of mortgage payments while tying up a chunk of savings in a down payment. That lack of liquidity matters, especially if you’re managing healthcare costs, helping family or trying to build an emergency fund. It’s the kind of strain .
The result? Many first-time buyers are effectively priced out not because homes have gotten bigger or fancier, but because the cost of borrowing has nearly doubled.
2. Cash buyers are rewriting the rules
One of the most dramatic shifts in today’s market is the sheer volume of cash offers. are all-cash transactions — down slightly from a 2023 peak but still well above pre-pandemic levels of around 26%.
Cash offers carry enormous advantages:
-
They often close faster — within weeks rather than the 30 to 60 days for financed deals
-
Contingencies are often waived, eliminating steps like appraisals and inspections,
-
They reduce the seller’s risk of deals falling through.
Cash buyers can also influence prices, bidding more aggressively because they’re not absorbing interest rates. For sellers facing tight timelines or highly competitive markets, it means loan-backed offers lose out even when they’re higher.
The result in a market increasingly defined by wealth rather than income. First-time buyers, already struggling with affordability, now — the lowest number since 1981. Homeownership is still one of the strongest paths to building wealth, but cash buyers take the lead while financed buyers fall further behind, widening a gap that only grows with time.
3. Builders abandoned starter homes — taking the ladder with it
For decades, the traditional path was this: buy something small, , then trade up. But that ladder depends on reasonably priced entry-level homes and interest rates that let people move when they’re ready.
Today, builders rarely construct starter homes anymore. In the 1980s, smaller entry-level homes made up about 40% of new construction. By 2020, that share had . The high cost of land and building materials often make smaller homes economically impractical for builders in many markets.
Meanwhile, homeowners with ultra-low mortgage rates have little incentive to sell. More than half of all mortgage holders are locked into rates below 4%, with — what economists call the “lock-in effect.” Moving means taking on a payment hundreds of dollars higher for the same or smaller space, so people stay put.
With fewer homes on the market and builders focused on high-margin properties, first-time buyers face dwindling options — often at prices well beyond what starter homes used to cost. Those who already own benefit from locked-in low rates and soaring equity, while those who don’t are stuck on the outside because the entry point keeps moving faster than their ability to save.
When renting protects your wealth better than buying
You might have been led to believe that renting is just throwing money away. But in today’s market, it’s often the safer choice. In , monthly rent is cheaper than a mortgage payment. That gap matters when savings to cover a $400 emergency.
A mortgage that strains your budget leaves little cushion for the unexpected. Even one , or job loss can upend your stability when you’re already stretched thin.
While renting doesn’t build equity, it can preserve financial flexibility — room in your budget to save, handle emergencies and weather paycheck disruptions. In a market where the and financial stress is widespread, that flexibility can be invaluable.
🏡 How you can still get in — even if it feels impossible
Although the old “buy now” advice doesn’t fit today’s landscape, alternatives do exist.
Try expanding your search to more affordable areas, or start with a condo or townhome instead of a single-family home. House hacking — renting out a room, basement or accessory unit — can offset a significant portion of your mortgage. And many local and state homebuyer and mortgage assistance programs can help bridge the gap, a home.
You can also choose to wait. Paying down debt, improving your credit or saving for a larger down payment strengthens your position. This mirrors most financial planning advice: focus on stability first so you can seize opportunities when they arise.
Finally, some buyers are exploring temporary solutions or adjustable-rate mortgages. now include rate buydowns — dropping interest rates for the first few years before settling at the full rate. While not ideal for everyone, in some cases, these create enough early breathing room to make a purchase possible while you once rates fall.
Bottom line: The path is narrower, but still exists for strategic buyers
Real estate remains one of the strongest builders of long-term wealth in the U.S. The problem is access to the starting line. Buyers with savings, substantial equity from previous homes or incomes well above the median have clear advantages. Everyone else faces a system built for a different market with lower interest rates, more starter homes and less cash competition.
The path hasn’t closed — it just requires more strategy and patience than ever. You’re more likely to succeed if you question the old rules, prioritize financial stability over rushing in and tap into a broader set of tools that aren’t part of the traditional playbook.
Homeownership may take longer to reach than it did for previous generations, but moving forward with realistic expectations beats chasing advice that no longer applies.
Other stories you’ll like
About the writer
Michael Kurko is a finance writer and editor who covers investing, real estate, personal budgeting and financial literacy. His expertise has been featured in FinanceBuzz, The Balance, Investopedia, U.S. News & World Report and Forbes Advisor, among other top financial publications. In addition to his work in finance, Michael is also a freelance book editor and fiction writer. He strives to make complex money topics clear and approachable so readers can make informed decisions and build lasting financial confidence.
Article edited by Kelly Suzan Waggoner
📩 Have thoughts or comments about this story — or ideas on topics you’d like us to cover? Reach out to our team at .
