Record housing costs have made the American Dream of homeownership a distant fantasy for renters.

According to a new survey by the New York Fed, a mere 13.4% of renters believe they’ll experience “residential mobility,” or the belief they’ll one day be able to afford a home.

That’s down from 15% in 2023 and 20.8% in 2014—thanks largely to record home prices as well as the highest mortgage rates in over two decades.

More than 74% of renters in the survey said getting a mortgage was “somewhat difficult” or “very difficult.” That’s far worse than the 63.1% of renters who said the same in 2022.

According to the Fed’s survey, households expect mortgage rates to climb to 8.7% a year from now before reaching 9.7% in three years—levels not seen since the early 1990s.

Those expectations defy even the most pessimistic forecasts from economists, many of whom expected 30-year mortgage rates to fall in 2024.

Meanwhile, the survey respondents said they expect house prices to increase by 5.1% over the next 12 months, virtually double the expected rate from the last survey.

Unfortunately, affordability conditions aren’t expected to improve anytime soon.

No relief in sight

According to Redfin data, 2023 was the worst year for housing affordability in recent memory, as the typical American family could only afford to buy 15.5% of available listings.

While conditions have somewhat improved in early 2024, a lack of supply and an unexpected rebound in mortgage rates keep pushing prices higher.

In a congressional hearing before the House Committee on Financial Services in March, the National Association of Realtors (NAR) highlighted the “dire lack of housing affordability and inventory” in the market, which has made homeownership nearly impossible for certain segments of the population.

“First-time home buyers continue to struggle to enter the housing market, lacking the housing equity that boosts the purchasing power of repeat buyers,” NAR’s deputy economist Dr. Jessica Lautz testified.

A lack of inventory has triggered fierce bidding wars for existing homes, driving up their price even higher.

According to the St. Louis Fed, the average sales price of a home sold in the U.S. reached $513,100 in the first quarter. While that’s still below the all-time high in 2022, it’s 3% higher than in the fourth quarter.

Meanwhile, mortgage rates are on the rise, with the average 30-year rate climbing steadily since mid-January, reaching 7.22% in the week ending May 2.

Keith Gumbinger, vice president at online mortgage firm, told Forbes that rates would need to fall to around 4-5% before housing conditions improve. In the meantime, homeowners continue to sit on their hands.

Rents remain a better option—for now

Although the cost of rent has grown by a third since Covid, it’s still much more affordable than buying.

According to Creditnews Research, middle-class households can afford basic rent in 73 of the 100 largest metro areas of the United States. By comparison, they can afford to buy an average home in just 52 of the top 100 metros.

The research suggests there are still plenty of affordable rental markets relative to income, especially in places across the Midwest and South. Unfortunately, the majority of Americans don’t seem to be satisfied with renting for the long term.

Citing a YouGov survey for Bankrate, the Urban Institute reported that “the vast majority of Americans believe owning a home is a greater achievement than raising a family, getting a college degree, or having a career.”

While homeownership remains a key part of Americans’ perception of an ideal life, many young adults are being forced to confront a different reality.

“The national homeownership rate is expected to decline over the next few decades, and a larger share of the population will be renters. The American dream can shift to match this reality,” wrote Urban Institute researchers Caitlin Young, Amalie Zinn, and Jung Hyun Choi.