First-time homebuyers lack a low-rate loan to trade in as mortgage rates climb above 7%, and many are turning to family for help

A few years ago, would-be buyers were looking at pandemic-era mortgage rates below 3%. Now, new homebuyers are confronting borrowing costs back in the 7% range, making entry into the housing market feel out of reach for many.

At the same time, many existing homeowners are still benefiting from the low rates they secured during the pandemic. First-time buyers, however, do not have that advantage. As Odeta Kushi, deputy chief economist at First American Financial Corporation, recently noted, they have “no low-rate mortgage to surrender,” which leaves them exposed to today’s higher rates.

“For many younger buyers, mortgage rates below 3% became their reference point, even though those rates were historically exceptional,” Kushi told Fortune. “So today’s rates can feel expensive by comparison, particularly when home prices are also significantly higher.”

Mortgage rates reached the 18% range in the early 1980s, but most current buyers are too young to remember that period. What they see instead is a housing market that feels increasingly unaffordable.

For many first-time buyers, though, the 3% era is no longer the main point of frustration. Real estate agents told Fortune that clients have largely accepted that those rates are gone. What bothers them more is how the year has unfolded and how high home prices remain.

Freddie Mac data show mortgage rates dipped to 5.98% at one point in late February before rising again to an average of 7.40% in the weeks of October 8 and October 15, the highest level since November 2023. Meanwhile, National Association of Realtors data indicate the average existing-home price is still about 25% above where it was when the pandemic began.

“It’s almost as if just as first-time homebuyers were accepting the 6% rate and hoping for 5’s, the mortgage rates decidedly took another leg up,” Ken Sisson, an associate broker with Christie’s International Real Estate Southern California in Los Angeles, told Fortune. He said many first-time buyers are disappointed not to see quotes in the low 6% range, and affordability has become a “significant challenge.”

“The mortgage rates obviously are half of the story related to that affordability challenge,” Sisson said. “The other half of the story is the home prices. My first-timers are well aware that the local prices were driven up significantly by the pandemic-era low rates.”

Even buyers who can manage the monthly payment often run into another obstacle: the down payment. Unlike repeat buyers, first-timers usually cannot rely on equity from a prior home sale to help fund the next purchase.

“Even when someone earns enough to comfortably afford a monthly mortgage payment, saving tens of thousands of dollars for a down payment and closing costs can take years,” Kushi said. Her research identified nearly 1.3 million “shadow homeowners,” meaning young adults living with family whose profiles suggest they could eventually become homeowners.

“Many are older and further along in their careers,” she said. “They’ve delayed forming their own households, and accumulated savings may help some of them eventually make the leap.”

For a rising number of first-time buyers, that leap is being helped along by parents.

“There is currently a massive transfer of wealth from boomers going on,” Veronique Perrin, a real estate agent at Christie’s International Real Estate New York, told Fortune. “I am working more and more with buyers who are doing this with their parents’ help. There is a lot of gifting happening, and most of the deals I have worked on lately involved one.”

Perrin, who said she is a baby boomer herself, said she is having those conversations more often with peers. Nationally, 25% of first-time buyers used a gift or loan from family or friends toward their down payment, according to the National Association of Realtors’ Profile of Home Buyers and Sellers.

Kushi said buyers who feel left behind should also remember what the low-rate environment looked like in practice.

“Multiple-offer bidding wars were everywhere, buyers routinely waived contingencies, and fierce competition helped push home prices up at double-digit annual rates,” she said. “Getting a low mortgage rate often meant competing in an extremely difficult market.”

While today’s buyers face higher borrowing costs and still-elevated prices, Kushi said some market conditions have improved in their favor. Homes are taking longer to sell, buyers have more options, and sellers are more open to negotiating on price or offering concessions such as help with closing costs or mortgage rate buydowns.

“There’s something to be said for having the time and negotiating power to find the right home at the right price,” she said.