A crucial part of the American Dream has never been further out of reach as the housing crisis drags on

• The housing market may be slowing — but home prices are still climbing.
• Mortgage rate hikes have helped to push housing affordability to a new all-time low.

The housing market may be slowing down, but that doesn't mean buying a home has become any more affordable.

Across the country, hopeful buyers are eagerly waiting for home prices to fall — especially as buyer competition continues to fizzle out. However, despite waning demand, prices are still rising and that could mean prospective buyers are betting on a pipe dream.

According to Corelogic, home prices hit a new all-time high in April. During the month, they grew by 20.9% from 2021 – marking the 123rd consecutive month of price gains. The increase is attributed to mortgage rate hikes, which researchers say drove buyer urgency.

"The record growth in home prices is a result of a scarcity of for-sale inventory coupled with eager buyers who want to purchase before mortgage rates go higher," Patric Dodd, president and CEO at CoreLogic, told Insider.

Buyers became accustomed to low rates during the pandemic, but the Federal Reserve's recent attempts to cool inflation have driven them higher. Despite rate growth slowing in the past few weeks, they're trending far above levels seen in the pandemic's early days.

According to Freddie Mac, the average U.S. fixed rate for a 30-year mortgage came in at 5.09% this week, declining from a pandemic high of 5.30% but still a tremendous increase from a pandemic low of 2.68% in December 2020.

"Most buyers who closed on their home in April had locked in their mortgage rate in February or March when rates were lower than today," Dodd said. "With 30-year fixed mortgage rates much higher now, we expect to see waning buyer activity because of eroding affordability."

Higher housing costs are pushing out potential buyers

Housing affordability has been on the decline for years — and it's only getting worse.

The US economy is likely facing a recession in the next year, and that means the housing market is in dicey territory too. With inflation at a forty-year high and consumer sentiment at a decade low, many Americans are struggling to afford homeownership.

According to the National Association of Realtors, rapid home price and mortgage rate growth has plummeted housing affordability by 29% over the last year – representing the steepest annual decline on record.

"With mortgage rates surging over 200 basis points in the past four months alone, many home shoppers are hitting a hard ceiling on their budgets and demand for new homes is waning as a result," George Ratiu, chief economist at Realtor.com, said in a statement.

As buyers grapple with affordability, a survey shows that more and more Americans do not believe now is a good time to purchase a home.

According to Fannie's Home Purchase Sentiment Index, the percentage of survey respondents who say it is a good time to buy decreased from 19% to 17% in May, while the percentage of those who say it is a bad time to buy increased from 76% to 79%.

"Consumers' expectations that their personal financial situations will worsen over the next year reached an all-time high in the May survey, and they expressed greater concern about job security," Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement. "Further, respondents' pessimism regarding home buying conditions carried forward into May, with the percentage of respondents reporting it's a bad time to buy a home hitting a new survey high."

As buyer sentiment falls, Fannie says the share of those who believe it's "easy to get a mortgage" decreased across almost all segments of their survey. Their data also shows that the percentage of respondents who believe mortgage rates will go down in the next 12 months decreased from 5% to 4%.

"These results suggest to us that increased mortgage rates, high home prices, and inflation will likely continue to squeeze would-be homebuyers – as well as those potential sellers with lower, locked-in mortgage rates – out of the market," Duncan said.