Galen Eckenroth has what he knows is an uncommon pastime for someone his age: He’s looking to invest in real estate.

Yet no matter how much he looked last year, the 26-year-old from San Diego just wasn’t able to buy. He says that in a city where buyers were willing to meet ever-higher prices, sellers turned up their noses at his Federal Housing Administration loan.

“People were coming in with cash,” says Eckenroth, who works as director of operations for a company that sells paddleboards. “It was like, ‘I don’t know how to compete with that.’”

In fact, first-time buyers all over the country, many of them young people facing a tough job market, are finding themselves in Eckenroth’s shoes. They’re locked out of housing as prices climb beyond what their generation could normally afford. And the implications for their long-term financial security could be dire.

The problem is that, even though affordability is high and construction is up, most of the action is in the high end of the market, which young people typically can’t afford.

When the sector picked up last year, builders started concentrating on buyers, some of them institutional, who could meet new high lending standards, even as the labor force fled to other jobs or areas. Sellers held on, waiting for prices to rebound, which tightened inventory and drove prices up even more.

The result is that, while home affordability has stayed relatively high, affordability for first time buyers is reliably low. For instance, in the fourth quarter of 2013, headline affordability was 168.5, but for first-time buyers it was only 111.2, according to the National Association of Realtors. (A higher score means homes are more affordable.)

Young people, meanwhile, have lousy job prospects, high student debt and difficulty qualifying for a mortgage. They’re not buying, but more importantly, they often can’t — and that could hurt them into the future.

“People under 40 are falling so far behind that it may become impossible to catch up,” says Signe-Mary McKernan, a senior fellow at the Urban Institute, which conducts research on economic and social issues in the U.S. She says the gap in homeownership is a big part of why.

Indeed, by the fourth quarter of last year, homeownership for those under 35 had dipped to 36.8 percent, down from 42.7 for the same period 10 years ago, according to the Census. That means millions of young people who suddenly don’t have the major investment that appreciated throughout most of the lives of their parents, providing them with a reservoir of wealth and security.

McKernan puts the losses for someone who delays homeownership for 10 years at $42,000.

“Wealth isn’t just money in the bank,” McKernan says. “It’s insurance against tough times, tuition to get a better education. It’s capital to build a small business. It’s a springboard into the middle class. Wealth translates into future opportunity for you and for future generations.”

Yet it’s an opportunity that many young people pass up.

That’s why, last week, Eric Stewart arrived to a seminar he was hosting for first-time homebuyers in the Washington, D.C., area to find that just four people had showed up.

The market is booming in the capital too, and sellers know they can get more than young people are able to put down.

“Unless the first-time buyer comes in with a bazooka, they’re just not going to get the house,” says Stewart, an agent for Long & Foster Real Estate.

To fix this, we could loosen mortgage restrictions again, but that’s likely a political non-starter. Memories of the bubble are fresh on both sides of the aisle. It may come down to job and income growth.

While we’re waiting, though, the slowdown could easily spread beyond young people: Older homeowners might find themselves stuck in homes and unable to access their equity without buyers below them looking to move up. That, in turn, could put the brakes on the home building that powers so much of the American economy. To make matters worse, a generation that’s just now in diapers will have to leverage their educations without being able to expect a windfall when they inherit.

Chris Estes, president and CEO of the National Housing Conference, which advocates for affordable housing, says the U.S. is better off when up to two-thirds of its people can participate in the wealth creation of owning a home.

“I do think the current market is a real warning signs for us,” Estes says. “When the movement at the market is at the upper end, we should be worried. That’s not a sustainable path.”

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