Americans Expect Mortgage Rates to Rise to Nearly 10% Over the Next Three Years, according to a New York Fed Housing Survey
In the face of fluctuating economic conditions, U.S. consumers harbor concerns that mortgage rates are on an uphill path, potentially reaching near double-digit figures within the next three years, reveals the latest survey conducted by the New York Federal Reserve.
The sentiments towards mortgage rates are rather pessimistic, with participants of the survey prognosticating an average hike in the 30-year mortgage rate to 8.7% over the upcoming year, and foreseeing a further climb to 9.7% in three years. These projections set a new precedent, marking the highest figures recorded in the series of surveys conducted by the New York Fed.
Despite these bleak expectations, a segment of consumers maintains a semblance of optimism regarding the future trajectory of mortgage rates. According to the survey, there is an average perceived probability of 61% amongst households that rates will experience a decrease over the next 12 months, indicating a notable level of hope amidst general uncertainty.
As it stands, the 30-year mortgage rate has been recorded at an average of 7.28%, a figure that underscores the ongoing challenges faced by prospective homebuyers. The recollection of rates surpassing 8% last October, propelling housing affordability to its lowest point in almost four decades, lingers as a stark reminder of the volatile mortgage landscape.
The New York Fed’s housing survey, a segment of the broader survey of consumer expectations undertaken annually since 2014, delves into the intricacies of consumers’ housing experiences, behaviors, and anticipations. Conducted in February 2024, this survey unveils significant insights into the current psyche of American homeowners and renters alike.
On a related note, Americans also anticipate a steady climb in home prices, expecting an average increase of 5.1% over the next year, a sizeable jump from the 2.6% projection in February 2023. Looking further ahead, the expectation for property price growth over the next five years rests at 2.7%.
Rental markets are not spared from the expected inflationary tendencies, with forecasted rent hikes of 9.7% over the following year and an average increase of 5.1% spanning the next five years. Amidst a backdrop of record-setting median home sale prices, which reached $383,000 as of April 28, and a modest 0.5% rise in rent prices to $1,396 in April, the market dynamics continue to evolve.
The interplay of high home prices and mortgage rates has cast a shadow on the mobility of Americans, severely limiting the propensity for relocating to another primary residence. This sentiment is echoed by renters, a significant portion of whom express concerns over the hurdles faced in securing a mortgage. An increasing disparity is observed, with 74.2% of renters identifying challenges in mortgage acquisition – marking an 8.4 percentage point rise from the previous year.
Moreover, the prospect of transitioning from renting to owning a home appears more distant than ever for many, with only 40.1% of renters harboring aspirations of homeownership, a decline of 4.3 percentage points from the prior year.
This comprehensive survey by the New York Fed sheds light on the looming concerns over mortgage rates and housing affordability, reflecting the broader economic uncertainties facing the nation. With both homeowners and renters bracing for potential hikes in living costs, the American dream of homeownership seems increasingly challenging for many.
