Economy 3 min read By Alice Ashford
First-time buyers face roughly 7% mortgage rates as family help fills gaps
With mortgage rates rising above 7%, first-time homebuyers no longer have the benefit of earlier low rates, and one in four turns to family for help with the down payment.
First-time homebuyers do not hold low-rate mortgages that they would have to give up when refinancing into a new loan. For new borrowers, rates have returned to the range of around 7%, and one in four first-time buyers relies on help from relatives or friends to cover the down payment. For many, this means the path to owning a home has become noticeably longer than it was in recent years.
Rates peaked at around 18% in the early 1980s, but in recent years young buyers have taken rates below 3%, which were available during the pandemic period, as their reference point. Those rates shaped many people's sense of what borrowing should normally cost. According to Freddie Mac, the average rate fell to 5.98% on February 26, but by mid-October it stood at 7.40%, the highest level since November 2023. Buyers had expected rates in the low 6% range, but bank offers came in higher than they anticipated.
Housing affordability has worsened for two reasons at once: rates and prices have both risen. Prices for existing homes are roughly 25% above their level at the start of the pandemic, according to the National Association of Realtors (NAR). In some markets, price growth is linked to the fact that pandemic-era low rates fueled demand. First-time buyers, meanwhile, lack the main source of funds available to sellers: equity from the sale of a previous home. Saving for a down payment and closing costs can take years, and this gap is pushing many to seek outside support.
Hence the growing reliance on family. A First American study, cited by economist Odeta Kushi, counts about 1.3 million "shadow homeowners," meaning people who live with relatives and postpone moving into their own homes. The NAR's 2026 buyer profile shows that 25% of first-time buyers used a gift or loan from family or friends. Real estate agent Veronica Perrin notes that in her practice, intergenerational gifts made by parents from the baby boomer generation are becoming more common.
The market is changing as well. Homes are staying on the market longer, and buyers have more options than during the pandemic-era bidding frenzy, when competitive offers and waived contract contingencies dominated. Sellers have become more willing to make concessions and are ready to pay for a rate reduction for the buyer through a buydown mechanism. Realtor Ken Sisson links these changes to a shift in the balance in favor of buyers, although high rates and prices still hold many of them back. As a result, buyers have gained more room to negotiate, but the cost of money remains the main obstacle.
Source: fortune.com
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