US homebuyers are getting discouraged by rising rates and prices

POTENTIAL homebuyers are getting discouraged by rising mortgage rates and home prices, according to a survey released on Monday (Apr 18) by the New York Federal Reserve.

US consumers expect mortgage rates to increase substantially over the next several years, with households on average projecting rates of 6.7 per cent a year from now and 8.2 per cent in 3 years, the survey shows.

The average probability of buying a home if a household moved over the next 3 years dropped sharply to 60.7 per cent from 68.5 per cent in 2021, marking the first decline since the annual housing survey started in 2014.

Respondents said they still view home ownership as a smart financial investment, but the outlook weakened slightly. About 71 per cent 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 per cent seen last year. The share of people who viewed housing as a bad investment ticked up to 9.9 per cent from 6.5 per cent a year ago.

US 30-year mortgage rates are surging this year and topped 5 per cent 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 4 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 per cent on average over the next year, up from the 5.7 per cent growth expected last year.

Renters aren't anticipating any relief in the near term, either. Households said they see rents rising by 11.5 per cent over the next year, up from 6.6 per cent last year. BLOOMBERG