"The lucky few Gen Z and millennials who broke into the housing market feel trapped in their starter homes"

Many members of Gen Z and millennials today are either renting or still living with their parents due to the high cost of purchasing a home. Even those fortunate enough to have bought a starter home are now finding themselves stuck in it.

According to new research by Edelman Financial Engines, high interest rates are keeping many Americans tied to their current homes. Over a third (36%) of homeowners report feeling stuck and unable to move because of these rates, a figure that rises to nearly 50% for those under 50, which includes mostly Gen Z, millennials, and some younger Gen Xers.

Last year's interest rate hikes by the Federal Reserve pushed mortgage rates to a 22-year high. Although rates have slightly decreased, many homeowners remain wary of the housing market. Seventy-two percent of Americans are concerned about current rates, and this concern jumps to 81% among those under 50.

The Struggle for Young Americans and Their Starter Homes

The challenging housing market has forced many young Americans to pour all their resources into their first home. According to Redfin, to afford a median-priced starter home, buyers need to earn around $80,000 annually. However, salaries aren’t rising fast enough to allow these buyers to move up to bigger homes like their parents did.

"Americans need to earn more than they did a year ago—and much more than before the pandemic—to afford a starter home because mortgage rates are high and home prices are near record levels," states the report.

As a result, most Americans are priced out of the market. U.S. Census data shows that just over half (50.1%) of households earn $75,000 or less, highlighting the affordability crisis.

Even presidential candidates are taking notice of the housing issue. “It’s the first time I can recall where both sides are talking about housing,” Fannie Mae CEO Priscilla Almodovar said, referring to the widespread affordability problem.

Once people manage to purchase a home, they often can't afford to move again. With so much of their wealth tied up in a single investment, re-entering the market becomes increasingly difficult, especially as older homeowners hold onto their homes to keep their lower mortgage rates.

Older Generations Are Also Stuck

It's not just younger people who feel trapped. Older generations are also facing challenges when it comes to moving. Brenda Edwards, a 70-year-old retired nurse, told the Associated Press that moving doesn’t make financial sense: “It would be too hard to purchase anything else.” Similarly, Sabrina Steward Koboldt expressed a desire to move, but she knows it's not feasible. "If we bought something now, our mortgage payment would more than double for the same-sized home," she said.

This housing market is locking everyone in. Clay Ernst, executive director of financial planning at Edelman Financial Engines, explained to Fortune that just three years ago, a $400,000 mortgage with a 3% interest rate would result in a monthly payment of $1,686. Now, with a 6.5% interest rate, the same loan would result in a monthly payment of $2,528—an increase of roughly 50%.

Even wealthier homeowners struggle in this environment. "It’s hard to walk away from a 3% mortgage and take on a 6.5% one with a 50% higher payment, regardless of your net worth," Ernst said.

Even affluent buyers upgrading to larger homes face challenges, as bigger homes mean higher insurance, utility bills, and a greater impact on their ability to save for retirement or college tuition.