Buying a home was difficult before the pandemic, but it has become increasingly challenging. Prices have surged nearly 40% over the last three years, and home listings have dropped approximately 20% over the same period. Interest rates have reached a 20-year high, impacting buyers’ purchasing power more than expected. Existing homeowners, however, have been shielded from these interest rate hikes, with the majority still benefitting from low monthly housing costs.

The 30-year fixed-rate mortgage is a key contributing factor to the existing divide in the U.S. housing market. Borrowers are granted a fixed interest rate and have the ability to refinance at any time, offering them the benefits without the risks. This makes the housing market highly unequal, as newer buyers face higher interest rates compared to existing homeowners, leading to a “bifurcated market” of haves and have-nots.

The U.S. housing market is further affected by a lack of available homes, leading to a fall in existing homes being sold by more than 15% in the past year. New buyers are facing significant challenges given the poor affordability and market conditions.

The 30-year mortgage has roots in the Great Depression when the federal government established long-term loans to replace short-term ones that aggravated the 1930s financial crisis. Over time, it became the prevailing mortgage industry standard. However, the system worsens affordability and has contributed to inequality in America.