Amid rising concerns over inflation and the future of housing, Americans are once again bracing for higher housing costs, according to the latest Survey of Consumer Expectations by the Federal Reserve Bank of New York. The survey indicates that respondents foresee both rent and home prices continuing to climb over the next year. Respondents predict a 5.1% increase in home prices within the next 12 months, up from the 2.6% forecasted a year ago, while rents are expected to surge by 9.7% over the same period, the second-highest reading in the survey's history. Looking further ahead, however, respondents expect home prices to rise at a slower pace, projecting a 2.7% increase in the next five years.
The survey reveals a particularly bleak outlook for renters, who are increasingly skeptical of ever owning a home. A record low percentage of respondents believe they have good odds of purchasing a house at some point in the future. Meanwhile, respondents expect mortgage rates, already at elevated levels, to continue climbing, with predictions of an average 8.7% rate a year from now and 9.7% in three years. These figures are well above the current average 30-year fixed rate of 7.22%, as reported by Fannie Mae on May 2.
Market Overview:
-A new Federal Reserve Bank of New York survey reveals Americans anticipate significant increases in housing costs.
-Both renters and homeowners expect rising prices, with renters feeling increasingly pessimistic about homeownership.
Key Points:
-The survey shows a jump in expectations for year-over-year rent increases (9.7%) and home price increases (5.1%).
-Longer-term forecasts offer some relief for home prices but predict continued high rents.
Respondents anticipate record-high mortgage rates, potentially exceeding 9% in the next three years.
Looking Ahead:
-Rising housing costs pose a challenge for the Fed's fight against inflation.
-High mortgage rates may cool the housing market further while locking existing homeowners into low rates.
-Renters face the prospect of persistently high rental prices with diminishing hope of homeownership.
Despite the pessimistic outlook on affordability, the report found that Americans still maintain a "strongly positive" view of housing as an investment. However, the anticipated increase in housing costs poses a significant challenge to the Federal Reserve's efforts to bring inflation down to its 2% target. With elevated mortgage rates stemming from the Fed's policy moves, activity in the housing market has cooled, but inflationary pressures remain stubborn.
Federal Reserve Chair Jerome Powell emphasized the complexities of the current situation after a recent meeting where the central bank held rates steady. He pointed out the lagging effect of inflation on housing costs, highlighting the slow-moving process where rising rents take time to abate. Furthermore, the New York Fed noted that high mortgage rates are locking homeowners into their current homes, limiting market mobility. Close to half of the survey's respondents assessed their probability of moving in the next three years at less than 10%, reflecting the economic challenges associated with buying a new home.
