Owning a home is a cornerstone of the American Dream. But with the recent rise in home prices and mortgage rates, homeownership feels like a far-off dream for an increasing share of Americans, especially those in their 20s and 30s.

In 2019, the median first-time homebuyer was 33 years old. Today, the typical first-time homebuyer is 40 years old.

That shift didn’t happen on its own. It’s an unintended consequence of the federal government’s COVID-era policies that included pumping trillions of dollars into the economy and driving short-term borrowing costs down to near zero. These policies briefly led to a homebuyer’s paradise, but over the medium-term they’ve left a dysfunctional housing market in their wake.

Federal lawmakers passed an unprecedented $7 trillion in new spending between 2020 and 2022, including three rounds of stimulus checks, state and local government bailouts, and boosts to unemployment benefits, Medicaid, and Obamacare. Many Americans had ample money in their pockets in the early 2020s, and, at the time, housing was viewed as a strong investment.

Simultaneously, the Federal Reserve pushed easy money and low short-term interest rates, while nearly doubling its holdings of mortgage-backed securities. These actions kept mortgage borrowing costs down. For new homebuyers in mid-2020 through mid-2022, the cost of homeownership became relatively manageable, and, as a result, home sales spiked during this period.

But such artificial government stimulus can last only so long before it turns into runaway inflation. Inflation peaked in June 2022, shortly after the Fed finally reversed course on its easy money policy. And from early 2022 through 2024 the Fed tightened the money supply to beat back inflation. Mortgage interest rates, which dropped below 2.65% in January 2021, shot up to near 7.8% by October 2023.

Such a dramatic increase in interest rates translates into a jaw-dropping rise in monthly payments on a 30-year loan. For a $400,000 mortgage, monthly principal and interest climbed from roughly $1,612 at the low to almost $2,877 at the peak, an additional $1,265 per month. Even after rates eased back somewhat, the financial burden of a new mortgage remained enormous. As of September 2025, the same $400,000 loan carried payments near $2,488, up 54% from January 2021. For millions of potential buyers who missed the low-interest-rate window, the math for purchasing a home no longer computes.

At the same time, many recent homebuyers and those who refinanced their mortgages into rock-bottom rates in the early 2020s are reluctant to sell their homes and lose those favorable financing terms. Why give up a 3% mortgage for a 7% market rate if it means paying hundreds of thousands of dollars more in interest over the life of a loan? By 2023, more than 80% of outstanding mortgages were locked in at rates at least one percentage point below prevailing market rates, which in turn created a “lock-in” effect where existing homeowners stay put. As a result, there are fewer homes on the market than today’s high home prices would otherwise suggest.

In a healthy housing market, high home prices would drive homebuilders to increase construction of new homes. That resulting new supply would help ease prices for new homebuyers. But several factors have dampened the supply response, including the higher financing costs, strict local zoning laws, and federal environmental restrictions that add bureaucratic red tape to new construction.

The government manufactured the recent spike in home prices and mortgage interest rates that have made housing seem unattainable for many young Americans today. Lawmakers juiced demand for housing while the Fed worked to slash the cost of obtaining a mortgage.

Interest rates aren’t just a benign, reversible lever for policymakers to push and pull at will. Interest rates are a critical market price that the government can control in the short run, but often at great cost. There are always tradeoffs. When the government spends with reckless abandon, American families always pay the price.

One consequence of the government’s heavy-handed actions is that it trains homebuyers and homebuilders to look to the government—not natural market forces—to determine when and whether to buy or sell. Potential homebuyers wait for the government to create the next buyer’s paradise situation, while homebuilders and sellers of existing homes stay on the sideline waiting for the government to swing conditions in their own favor.

The result is a centrally planned and stale housing market that works well for almost nobody.

The best thing that the government can do to solve for the lack of affordable housing is to get out of the way. The Fed should strive to keep inflation in check while avoiding massive swings in interest rates. Lawmakers and regulators should reduce burdensome taxes and regulations. Local officials should open up more land for construction and streamline permitting processes.

If we want the American Dream to remain attainable for the next generation, we must return to a free and dynamic housing market that allows people to build homes, build families, build equity, and plan out their own future.

Not just in government-created windows of opportunity, but whenever it’s right for the individuals and families.

The post Don’t Trust the Government to Solve the Housing Affordability Problem That It Created appeared first on The Daily Signal.