With prices and mortgage rates rising, homeowners are feeling helpless.

When Rachel Burris moved into her mother's house about a decade ago, it seemed like a short-term stop on the road to homeownership.

The 35-year-old hairstylist has spent those years improving her credit score and saving money for a down payment. But with mortgage rates hovering around 7% and home prices skyrocketing, it doesn’t look like the mother of three will be signing a contract for her own home anytime soon.

“I don’t even know if I’ll ever be able to own my own home,” said Burris, who lives about 20 miles outside Fort Worth, Texas, in a town called Aledo. “I feel like we’re stuck, and it’s very hard to deal with.”

Boris’s experience mirrors that of millions of Americans whose financial and personal lives have been disrupted by high housing prices and the rising cost of home-buying. That helps explain the negative sentiment about the state of the national economy.

It also highlights an existential angst that many people have: the American dream seems more out of reach these days.

For aspiring homebuyers like Boris, the combination of high mortgage rates and rising list prices has left them feeling trapped.

The 30-year fixed-rate mortgage, a popular option for financing homes in the U.S., has risen about 7% over the past few months. It’s down from hitting 8% for the first time since 2000 late last year. But that’s still a big jump from the sub-3% levels seen in the early years of the pandemic — which prompted a wave of sales and refinancing in the housing market.

On the other side of the equation, rising home prices are also adding pressure. The Case-Shiller national home price index hit an all-time high this year, and Zillow’s home value index topped $360,000 in May, up nearly 50% from the same month five years ago.

In contrast, affordability has fallen sharply compared to a few years ago. The Atlanta Fed’s April homeownership economics reading was 36% below its peak in the summer of 2020 during the pandemic.

Nationally, the share of income needed to own a median-priced home has exceeded 43%, according to the Federal Reserve Bank of Atlanta. Anything above 30% is considered unaffordable.

The Atlanta Fed also found that the negative effects of higher interest rates outweigh the benefits to income growth for average Americans. That underscores the strength of these critics, given that average hourly earnings in the private sector rose more than 25% between June 2019 and 2024.

This difficult environment has put a freeze on activity for potential buyers and sellers alike.

In theory, existing homeowners should be excited to see their property values ​​rise quickly. But potential sellers are put off by concerns about the price they might get for their next home, creating what a team at the Federal Housing Finance Agency calls a “holding effect.”

There’s already evidence of this market slump: Rates at these levels have led to more than 875,000 fewer home sales in 2023, according to the team behind an FHFA working paper released earlier this year. That’s a big part, since the National Association of Realtors reported that about 4 million existing homes sold in the year.

Furthermore, the Federal Housing Finance Agency found that the odds of a homeowner selling a home are 18.1% lower for every 1 percentage point that their mortgage rate falls from its current level. The typical borrower had a mortgage rate more than 3 percentage points lower than they would have in the fourth quarter of 2023.

If the homeowner had purchased the home late last year, the FHFA team found that the monthly principal and interest payments would have cost him about $500 more.

Accordingly, co-author Jonah Costi said, existing homeowners who are being touted for these low mortgage rates are undoubtedly better off than those looking to buy a home for the first time today. But he said there’s a big problem for this group: Moving for a job or to accommodate a growing family is becoming more complicated.

“They are unable to improve their housing to accommodate their new living situation,” Costi said of this group. “Or, in some extreme circumstances, they are not making the major life changes that might require moving.”

That’s the predicament Luke Nunley found himself in. In late 2020, the 33-year-old health director bought a three-bedroom, two-bathroom home with his wife in Kentucky with an interest rate of less than 3%. The home has more than doubled in value in nearly four years.

After having three children, they decided to postpone having a fourth until mortgage rates or home prices dropped enough to expand their home. Nunley knows the days of getting a rate below 3% are long gone, but he can’t justify anything above 5.5%.

“It’s just a very tough situation,” Nunley said. “We’re going to lose so much money at the current rates that it’s going to be impossible for us to move.”

Nunley is part of the vast majority of Americans who are not paying these expensive mortgages.

The Federal Home Finance Corporation found that nearly 98 percent of mortgages were locked in at a rate below the average rate of about 7.2 percent in the fourth quarter of last year. As with Nunley, nearly 69 percent of mortgages were locked in at rates more than 3 percentage points lower.

The surge in buying at the start of the pandemic is one answer to why so many people are not paying the current rate. The staggering figure can also be explained by the rush to refinance during that period of low borrowing costs in 2020 and 2021.

While these low mortgage rates may help boost the wealth of mortgage holders, Geoffrey Roach, chief economist at LPL Financial, warned that this could be bad news for policymakers. That’s because it doesn’t suggest the Fed has succeeded in raising interest rates to cool the economy.

To be clear, mortgage rates tend to follow the path of interest rates set by the Fed, but they’re not the same thing. Still, Roach said, the fact that many people are locked into low borrowing rates on their homes helps explain why they don’t feel as constrained by tighter monetary policy as they have in the past.

“Our economy has become less sensitive to interest rates,” Roach said. “That means higher interest rates aren't doing their job as well. They're not putting the brakes on as you might normally expect.”

The low supply of housing has pushed up prices, even as higher borrowing costs weigh on purchasing power. This runs counter to conventional wisdom, which suggests that prices will fall as interest rates rise.

In the longer term, experts said, increasing the amount of new housing could help expand access and cool rising prices. In particular, Daryl Fairweather, chief economist at housing market database Redfin, said the national market could benefit from more townhouses and apartments, which are typically less expensive than typical homes.

Today, this new reality has created generational differences in home ownership and how to access it.

Zillow found that 34% of all mortgage holders received a financial gift or loan from family or friends for their down payment in 2019. In 2023, that number jumped to 43% as affordability declined.

It’s also much harder for young people than it was for their parents to buy a home, according to Zillow data. Today, it takes nearly nine years to save up a 20 percent down payment using 10 percent of the median household income each month. In 2000, it took less than six years.

“It’s not avocado toast,” said Skyler Olsen, chief economist at Zillow, referring to a joke that millennials spend too much on luxuries like lunch or coffee.

Olsen said younger generations should adjust their expectations about ownership in the tougher environment. These Americans should expect to rent longer into adulthood, or plan to acquire their first home in part through the extra income from renting out a room, she said.

For ordinary people like Burris, the housing market remains top of mind as the Texas woman weighs her finances and evaluates candidates for the November election. The hairdresser has continued to help her mother pay home insurance, utility bills and taxes in lieu of regular rent.

Boris still hopes that one day she will be able to invest that money in building her own property. But each time, unexpected expenses like a wrecked car or macroeconomic variables like rising mortgage rates make her dream feel out of reach.

“The ultimate goal for me and my family is to get out of my mom’s house,” she said. “But I feel like I’m on a hamster wheel.”