By Michael S. Derby
(Reuters) – Americans are once again bracing for another round of higher housing costs, the New York Federal Reserve said on Monday.
As part of its latest Survey of Consumer Expectations, the regional Fed bank found that respondents see higher short-term increases in both rents and home prices, although they do see some longer-term relief for home prices. Households also see no relief from home financing costs.
The New York Fed said respondents in February forecast that home prices would rise 5.1% a year from now, up from the 2.6% they predicted a year ago. But in five years, respondents see house prices rising by 2.7%, compared to 2.8% in last year’s poll.
On the rent side, respondents believe costs will rise 9.7% a year from now, the second highest in the survey’s history, compared to 8.2% in the February 2023 poll. In five year, respondents see rents “essentially flat,” according to the New York Fed at 5.1%.
The report shows that respondents still have a “strongly positive” view of housing as an investment. They also expect mortgage rates, which are already high, to rise even further. Respondents predict that the average mortgage rate will be 8.7% in one year and 9.7% in three years, with both figures at record levels.
The New York Fed report shows that the US central bank could face new challenges in bringing inflation back to its 2% target, while housing costs are still expected to rise sharply. The Fed has suffered from unexpectedly strong price pressure in the first months of this year, raising the question of whether it will be able to cut interest rates in 2024. High mortgage rates as a result of the Fed’s policy have deeply chilled housing market activity.
(Reporting by Michael S. Derby; Editing by Paul Simao)
