Americans Are Discouraged by Rising Home Prices and Rates. Is Homeownership Becoming a Pipe Dream?

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  • The average probability of buying a house if a household moves in the next three years has dropped to its lowest since 2014.
  • Renters have reported a marked decline in their expectations of being able to afford to buy.
  • Renters expect rents to rise by 11.5% over the next 12 months, almost double from last year’s expectation of 6.6%.

Households are getting discouraged by rising home prices and mortgage rates.

According to a recent survey released by the New York Federal Reserve, households expect home prices to continue rising faster than they expected last year. They also expressed a lower expectation of buying a home over the next three years, with renters reporting a marked decline in expectation of ever owning a home.

Homeownership outlook is doubtful

The annual survey tracks the average probability of buying a home if a household moves within three years. Last year the number was 68.5%; however this year the number dropped to 60.7%, the lowest since 2015. This decline is the first one since the survey’s inception in 2014.

Renters also reported a sharp decline in their predicted probability of being able to afford a home in the future. It dropped from 51.6% in 2021 to 43.3% this year. This is the first time it has dropped below 50% and is also the lowest probability since the survey’s inception.

Mortgage rates expected to rise

Households expect mortgage rates to increase substantially, to 6.7% a year from now and 8.2% in three years. Last year, the annual average mortgage interest rate for 30-year mortgages was 2.96%. These were the lowest rates since 1991. In order to combat high inflation, however, the Fed has started its series of interest rate hikes. The average mortgage rate for a 30-year mortgage is now above 5% and could continue to rise throughout the year.

Is buying a home still worth it?

According to the study, a majority of those surveyed still believe a home is a good financial investment, but that number has dropped from 73.6% to 71%. Those that believe a house is a “bad” or “somewhat bad” investment rose to 9.9% from 6.5% a year ago.

Even with the rise in mortgage rates, expectations of average home prices rose sharply compared to last year. Survey respondents expect home prices to increase by 7.0%, the highest since the inception of the survey and up from 5.7% expected growth from last year. Renters are also feeling the pinch, with households expecting rents to rise by 11.5% over the next 12 months, almost double from last year’s expectation of 6.6%.

The decision to buy a home should be based on your personal financial situation. For many households, it may be better to buy than rent; however, down payments have been at a historic high. According to a Zillow report, down payments increased by more than $10,000 in 2021 for a typical 30-year fixed mortgage. On top of that, the average homeowner will pay an additional $15,405 each year on top of their mortgage. These costs include utilities, home improvement expenses, maintenance, property taxes, and homeowners insurance. While buying a home may still be worth it, it is important to take into account all the expenses of homeownership.

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