Americans expect home prices to rise at fastest pace since 2014, NY Fed survey shows
Households expect home prices to increase this year, despite rising mortgage rates
Experts forecast low housing supply through 2024
Macro Trends Advisors founding partner Mitch Roschelle discusses the housing market amid rising inflation and home builders starting to favor selling to investors.
U.S. housing sales are heating up this spring, and although rising mortgage rates have threatened to cool demand, Americans still expect home prices to surge higher this year, according to a key Federal Reserve Bank of New York survey published Monday.
The average expectation is that home prices will be up 7% one year from now, hitting the highest level in eight years, according to the New York Federal Reserve's Consumer Expectations Housing Survey, which dates back to 2014. That compares to last year's reading of 5.7%.
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Consumers expect home prices to climb by 2.2% per year on average for the next five years, in line with their expectations from last year. That's likely in part because Americans believe mortgage rates are going to rise rapidly in the future, jumping to 6.7% a year from now and 8.2% in three years.
Homes are seen for sale in Portland, Oregon, March 20, 2014. (Reuters/Steve Dipaola/Files / Reuters Photos)
Long-term mortgages rates have continued to climb, with the key 30-year loan rate hitting 5% last week for the first time in more than a decade. The average rates have been rising at the fastest pace since 1994. By comparison, the 30-year rate stood at just 3.04% last year.
"Combined with the expectation of a 7.0% increase over the next 12 months, this suggests that households expect a pronounced slowdown in price growth after next year," the survey said.
Rent change expectations were actually higher than home price expectations over both horizons: Households forecast an 11.5% spike in rent costs over the next year, compared to 6.6% from February 2021. Over the next five years, households expect annual rent increases of 5.2%, up from 4.4% a year ago.
"Taken together, these numbers suggest a spike in rents in the near term, followed by more moderate growth in subsequent years," the survey said.
A for sale sign stands in front of a house in Westwood, Massachusetts, Oct. 6, 2020. (AP Photo/Steven Senne / AP Newsroom)
The report, which is based on a rotating panel of 1,300 households, comes as consumers grapple with the hottest inflation in more than 40 years. The Labor Department reported last week that prices soared by 8.5% in March from the previous year, the fastest pace since December 1981.
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The eye-popping reading, the 10th consecutive month that inflation has topped 5%, has ramped up pressure on the Federal Reserve to act more aggressively to tame prices. Policymakers already raised rates by a quarter-point in March and have since signaled support for a faster, half-point increase at their May meeting.
Traders are now pricing in more than an 85% chance of a hefty half-point rate jump when policymakers meet next month, instead of a more modest quarter-point increase, according to the CME's FedWatch tool.
It would mark the first time since 2000 that the U.S. central bank raised the federal funds rate by 50 basis points.