On April 11, 2024, an advertising board advertising houses for sale hung outside a building in Manhattan, New York City.
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The dream of owning a home has become further out of reach for renters, with rising housing costs and rising interest rates hampering the U.S. housing dream, according to a survey released Monday by the New York Federal Reserve.
In the central bank’s 2024 annual housing survey, the proportion of renters with hopes of “housing mobility,” or those who believe they will one day be able to afford a home, fell to a record low of 13.4% as of February.
This is down from 15% in 2023 and well below the series high of 20.8% in 2014.
The pessimism about future prospects comes from a combination of factors that have combined to hinder the possibility of renters transitioning to homeownership.
First, about 74.2% of renters find it somewhat or very difficult to obtain a mortgage, which the New York Fed said is a “significant deterioration” from levels of 66.5% in 2023 and 63.1% in 2022.
Additionally, mortgage rates remain high by historical standards. The current average borrowing rate for 30-year fixed-rate mortgages is 7.22%, the highest level since late November 2023. According to Freddie Mac.
Housing affordability has barely improved, with the median price in February at $388,700, the highest level since November, according to the National Association of Realtors. NAR’s housing affordability index It was 103 in February, down slightly from January but still at a high level, with the average monthly housing payment at $2,040.
Survey respondents expect home prices to rise 5.1% next year, nearly double the 2.6% expected in February 2023 and above the pre-pandemic average of 4.2%.
Although the Federal Reserve is expected to cut interest rates by the end of 2024, respondents believe mortgage rates will only go higher. Borrowing costs are expected to reach 8.7% in one year and 9.7% in three years, the survey showed.
There’s not a lot of good news on the leasing front, either. Respondents expect rental costs to rise 9.7% next year, 1.5 percentage points higher than last year’s survey and the second-highest ever.
A week ago, the Federal Open Market Committee voted to keep its benchmark interest rate steady while signaling a “lack of further progress” in its efforts to bring annual inflation back to 2%.
Futures market pricing suggests the Fed will begin cutting interest rates in September and may cut rates again in December.
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