According to a recent survey conducted by the New York Federal Reserve, American consumers are bracing themselves for a significant uptick in mortgage rates over the next three years. The survey sheds light on the prevailing sentiment regarding housing market trends, reflecting both concerns and hopes among households across the nation.
The survey unveiled a rather pessimistic outlook on mortgage rates, with consumers anticipating a substantial increase. On average, respondents predicted that the 30-year mortgage rate would climb to 8.7% within the next year, reaching 9.7% within three years. These projections, according to the NY Fed, mark record highs in the series.
Interestingly, amidst these apprehensions, a glimmer of optimism persists, with some holding onto the belief that rates might decline. The survey indicates that households, on average, believe there's a 61% chance of rates dropping over the next 12 months, also reaching a series high.
As of Friday afternoon, the 30-year mortgage rate averaged 7.28%, as reported by Mortgage News Daily. Last October, the rate breached 8%, leading to a notable decline in affordability, reaching a 38-year low.
The New York Fed's survey, which delves into housing-related sentiments, forms part of the broader Survey of Consumer Expectations and has been conducted annually since 2014. The data collected in February 2024 provides insights into consumers' experiences, behaviors, and expectations concerning housing.
In addition to concerns about mortgage rates, Americans also anticipate a rise in home prices. Expectations suggest a 5.1% increase over the next year, a significant jump from 2.6% recorded in February 2023. Over a five-year horizon, people foresee a more modest growth of 2.7% in home prices.
Rent prices are also expected to surge, with respondents forecasting a 9.7% increase over the next year and a 5.1% rise over the next five years.
Meanwhile, the median home-sale price hit a record high of $383,000 as of April 28, according to a report by real estate brokerage company Redfin. This represents a 4.8% increase from the previous year, underscoring the persistent challenge of low housing inventory in the market.
On the rental front, April saw a marginal 0.5% uptick in rent prices, according to data from Apartment List, bringing the average rent to $1,396. However, the pace of growth has notably slowed in recent months, attributed to an increase in available rental properties.
The survey also highlighted a discouraging trend: the reluctance among people to relocate due to high prices and mortgage rates. Additionally, renters expressed growing difficulty in obtaining mortgages, with 74.2% reporting challenges - a significant 8.4 percentage point increase from the previous year.
Moreover, the desire for homeownership among renters seems to be waning, with only 40.1% expressing intentions to own a home - a decline of 4.3 percentage points and a new low. These findings underscore the complex dynamics at play in the housing market, reflecting both the challenges and aspirations of American consumers.