These are definitely some challenging times if you want to buy a home for the first time. And it’s a bit of a challenging time even if you own a home with a mortgage that you got a few years ago in the 3% range and now want to buy a new one — which would likely mean taking out a mortgage at roughly twice your current rate.

That dynamic, what’s sometimes called the “mortgage lock-in effect”, is also keeping the inventory of homes for sale really low. After all, nobody wants to sell if it means trading their nice low interest rate for a nasty higher one. 

These conditions are driving home prices higher, making the purchase of an affordable home an even more distant pipe dream for many.

The National Association of Realtors reports that existing single-family home prices climbed 3.5% on an annual basis in the fourth quarter of last year, to a national median price of $391,700. The cost of the monthly mortgage payment on that home rose 10%.

After peaking last summer, mortgage rates have fallen, noted Jessica Lautz at the National Association of Realtors.

“As interest rates come down, buyers come into the home buying market once again,” she said

But “they are encountering an environment with extremely limited housing inventory,” Lautz added. “That pushes home prices up, as bidding wars start happening again. It’s very tough, especially for first-time homebuyers who do not have housing equity.”

As a result, it’s those would-be first-time homebuyers who are likely to be left paying rent for now — which, by the way, is about 20% more expensive than before the pandemic. 

Responding to that stressed rental market, online real estate firm Zillow just launched a new service, which lists individual rooms for rent in homes, townhouses and apartment buildings.

“Cost can be a constraint, especially in expensive markets in major metropolitan areas,” said Zillow senior manager Lily Ferguson. “A renter might be able to now live in a house with a yard or a neighborhood that would have been previously out of reach if renting on their own.”

A homeowner might take on a renter to help pay their mortgage; a group of roommates could lease their spare room to lower each tenant’s monthly rent payment.  

In the long run, falling interest rates for mortgages and bank loans will be to start easing the housing crunch, said Robert Dietz at the National Association of Home Builders.

“We could see lower rates for financing home construction and land development. The most effective long-run way to tame shelter inflation is to build more affordable, attainable housing,” he said.

That includes housing of every kind, Dietz added: for sale and for rent, single-family and multifamily.