U.S. homebuyers discouraged by rising rates, prices

Potential homebuyers are getting discouraged by rising mortgage rates and home prices, according to a survey released on Monday by the New York Federal Reserve.

U.S. consumers expect mortgage rates to increase substantially over the next several years, with households on average projecting rates of 6.7 percent a year from now and 8.2 percent in three years, the survey shows.

The average probability of buying a home if a household moved over the next three years dropped sharply to 60.7 percent from 68.5 percent in 2021, marking the first decline since the annual housing survey started in 2014.

Respondents said they still view homeownership as a smart financial investment, but the outlook weakened slightly. About 71 percent of respondents said they thought buying property in their ZIP code was a “very good” or “somewhat good” investment, down from the survey high of 73.6 percent seen last year. The share of people who viewed housing as a bad investment ticked up to 9.9 percent from 6.5 percent a year ago.

U.S. 30-year mortgage rates are surging this year and topped 5 percent this month for the first time in more than a decade, according to Freddie Mac. They are expected to keep climbing as the Fed pivots to combating the hottest inflation seen in four decades. The Fed raised its benchmark interest rate in March for the first time since 2018, and officials are expected to keep hiking for the rest of the year.

But consumers expect home prices to keep rising even as borrowing costs increase. Respondents surveyed by the New York Fed said they anticipate home prices in their ZIP code to rise by 7 percent on average over the next year, up from the 5.7 percent growth expected last year.