Updated November 12, 2024 at 08:00 AM ET

It can be hard to get a foothold in today's tough housing market. Bob Nicholson would know: He sold his home last year but is now struggling to find a new one he can afford.

Until last June, the 58-year-old was the owner of a townhome in Burke, Va., a moderately expensive suburb of Washington, D.C.

"It was an end unit. It had a large backyard, fireplace, in a nice community here in Burke," he says.

He had put a lot of work into the home, and it was in great shape.

Then his wife, who works for the State Department, got a job posting in Melbourne, Australia. Living abroad for a couple years sounded like a fun adventure for the pair, who had recently married. So he decided to sell the townhouse — and made good money on the sale.

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"I thought about renting the place while I was gone," says Nicholson. "And just wasn't comfortable with the notion of being a landlord from the other side of the world."

Nicholson also figured housing prices would soon peak and fall anyway. But things didn't quite go as planned.

He wasn't able to get an IT job in Australia as he'd hoped. And with two sons in college, he needed to get back to the U.S. to work, so the couple returned to Virginia after just a year.

Nicholson was able to get his old job back. But his old house? There's no getting that back.

"It was clearly a mistake having sold that home," he says, resigned about the financial impact of his decision. "It would have been much better to return to the country with that home."

Home prices are surging

While they were away, home prices just kept rising, instead of cooling as he had expected.

Home prices in Burke have increased 15% in the last year. Nationally, the median existing home price has gone up about 50% in the last five years.

Nicholson and his wife, Cindi, are renting for now. They plan to use the proceeds from the townhome toward a down payment on their next home. But with home prices higher, it won't cover as much as they'd hoped.

"I'm very frustrated. The real estate market is, in my opinion, far too hot and just continues to get worse," Nicholson says.

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Now they're looking for a fixer-upper single-family home in the $650,000 to $700,000 range, more than $100,000 over what they'd been hoping to spend.

Nicholson hopes to retire at age 67, nine years from now. That's another reason he's wary of taking on a big mortgage.

"Part of the definition of retirement is that you've paid off your home, you've paid off your cars, and you're ready to make that change in life," he says. "To get across that finish line for me, mentally ... means that I need to be able to buy a home now and finish paying it off by the time I reach retirement."

They plan to put down at least 25%, take on a 15-year mortgage and pay it off early — if they can find a suitable home at a price where that's possible.

High prices, few sales

One of the big factors slowing the housing market in the last couple years has been that most homeowners are doing the opposite of what Nicholson did: They're holding onto their homes, even if they aren't a good fit anymore, due to the exceptionally low mortgage rates they were able to lock in a few years ago.

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Nearly 60% of active mortgages in the U.S. have rates below 4%, while today the average rate on a new 30-year mortgage is 6.8%.

These conditions have led to a very slow housing market: Existing home sales have declined by 40% since the beginning of 2022 and are on track for their slowest year since 1995.

But despite the fact that home prices are increasingly out of reach to many Americans, home prices keep rising because the U.S. is millions of housing units short.

"There's no kind of physical law of gravity that requires them to come down," says Lu Liu, assistant professor of finance at Penn's Wharton School.

That shortage of new homes keeps prices elevated.

Nicholson gets frequent reminders that his former home is growing in value.

"I get emails from Redfin on a regular basis telling me that my home is now worth $44,000 more than it was last sold for. That doesn't hurt at all," he says with evident sarcasm.

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