By Michael S. Derby
NEW YORK (Reuters) - Americans’ expectations for home price increases over the next year moderated sharply in a new report on the outlook for the housing sector, released Tuesday by the Federal Reserve Bank of New York.
Over the next year, respondents to the central bank survey projected home prices to rise by 2.6%, down sharply from the 7% annual rise they projected in Fed data a year ago. The bank noted the expected increase is the weakest since 2014, when the New York Fed survey began.
Even as expected home price increases sharply declined, expectations for rent remained historically high, the bank said. Over the next 12 months, households see rent rising by 8.2%, down from the even higher 11.5% gain predicted a year ago.
The report also found that expectations of refinancing a home fell to a record low for the survey. That said, households still retain an underlying bullishness on home buying, with the report noting “a large majority of households continue to view housing as a good financial investment, although the share characterizing housing as a ‘somewhat good’ or ‘very good’ investment declined slightly” compared to a year ago.
Expectations about the outlook for housing were based on survey data from last month, the bank said.
Forecasts of a weaker housing market compared to a year ago arrive amid a sea change in the economy relative to a year ago. When the New York Fed reported on the outlook for housing via data collected for its Survey of Consumer Expectations a year ago, the central bank was embarking on what has thus far been a historically aggressive campaign of rate rises aimed at lowering very high levels of inflation.
That campaign has lifted the Fed’s overnight target rate from near zero levels a year ago to its current range of between 4.75% and 5%. That increase has caused mortgage rates to jump and has cooled housing activity dramatically. At the start of March 2022, Freddie Mac (OTC:FMCC) data showed the average 30-year fixed mortgage rate at just under 4%, which surged to just over 7% in November, before easing back to an average of 6.42% as of the week of March 23, the home financing lender said.
In the New York Fed report, households expect higher mortgage rates in the future. Over the next year, households project mortgage rates to rise to 8.4% and 8.8% in three years’ time. Amid the higher rate expectations, survey respondents had lower expectations of refinancing existing mortgages.