Homeownership Dream Fades as Mortgage Rates Peak at 8%

Over 30 million homeowners in the U.S. currently do not have a mortgage, a trend that serves as a significant warning sign for the housing market. High home prices and elevated mortgage rates have made it increasingly difficult for Americans, particularly first-time buyers, to purchase homes. This situation has led many current homeowners, especially those with low or no mortgage payments, to stay put rather than sell, further limiting the supply of available homes and keeping prices high. As a result, fewer homeowners are tapping into their home equity due to the high cost of borrowing.

The American dream of homeownership, once seen as a symbol of economic stability and wealth building, is now out of reach for many. The number of first-time home buyers has plummeted from nearly 3.2 million in 2004 to just 1.14 million in 2024. This decline is due to a chicken-and-egg situation where older generations, who bought homes decades ago, are reluctant to sell due to high mortgage rates. Mortgage rates, which were sub-3% during the pandemic, peaked at 8% in October 2023 and currently hover near 7%. This lack of supply keeps home prices high, preventing younger generations from entering the market.

Many Americans now own their homes outright, meaning they do not have a mortgage payment. While this is beneficial for them, given the unlikely drop in mortgage rates, it is dismal news for those trying to break into the housing market. The share of homeowners without a mortgage payment rose to 40% in 2023, up from 33% in 2010, reflecting a trend toward outright homeownership and conservative borrowing. This trend is exacerbated by the fact that people are not borrowing against their homes due to high and risky interest rates.

U.S. mortgage borrowers have $11.5 trillion of tappable home equity in their properties. However, their preference to tap into this equity has been more muted than between 2001 and 2008. This shift is due to borrowers focusing on paying down their mortgages and owning their homes outright, as they are more averse to riskier debt products like home equity lines of credit (HELOC). Borrowers used just 0.41% of available tappable equity in the first quarter of 2025, less than half of the typical withdrawal rate observed from 2009 to 2021. About 25% of homeowners are considering a home equity loan or HELOC in the next year, but the overall trend indicates a slow pace of home equity extraction due to higher mortgage rates, stricter underwriting standards, lower levels of mortgage lending by banks, and more conservative borrowing behavior.

While the current situation presents challenges for the housing market, there is a silver lining. More people are building wealth and reducing debt by avoiding home equity loans. This trend is likely to continue as long as mortgage rates remain high and borrowing standards are strict. The housing market is particularly vulnerable for recent home buyers, with early signs of risk building within specific markets and borrower populations, such as those with limited equity or behind on student loans. As the cost of borrowing against home equity drops, it could become more attractive in the second half of the year, especially if the Federal Reserve moves forward with anticipated rate cuts.