Americans predict mortgage rates will top 8% next year
A year ago, Americans were right on the nose predicting where mortgage rates would be 12 months later. If they are right again, rates should surpass 8% by this time in 2024.
That’s according to the latest annual consumer expectation survey on housing released Tuesday by the Federal Reserve Bank of New York that showed respondents surveyed in February are expecting the average mortgage rate to reach 8.4% within 12 months and 8.8% in the next three years.
In last year’s survey, respondents predicted rates would hit 6.7% — almost exactly where they were at the beginning of March before falling back during the recent banking crisis.
The expectation of higher rates may reflect that Americans are coming to terms with the higher-rate environment — following at least a decade when rates never crested 5% — even if that means affordability concerns could linger.
For instance, with a 8.2% mortgage rate and 20% down, a homebuyer would have a $2,165 monthly mortgage payment on a median-priced home of $363,000. That’s over $500 more a month than if the mortgage rate was at the current 6.42%.
The example also doesn’t take into account any home price growth, which Americans see slowing even further a year from now, according to the survey, which may somewhat offset those affordability challenges.
According to the survey, respondents expect home prices to grow by 2.6% from this year to next, the lowest recorded forecast since the survey started in 2014. The next lowest was 3.3% in 2016.
This year’s prediction is also down sharply from last year’s annual growth expectation of 7.0%, which has proven to be off base, according to the latest S&P CoreLogic Case-Shiller U.S. National Home Price index.
Housing values only grew by 3.8% year over year in January, down from 5.6% in the previous month, according to the index released on Tuesday. Values also fell month over month by 0.55%, registering the seventh straight monthly decline.
“January's market weakness was broadly based," wrote Craig Lazzara, managing director at S&P DJI, in the release.
Despite housing’s challenges, the majority of Americans — 68.4% — still think a home is a good investment, according to the survey. While that’s slightly down from a year ago, it’s still above pre-pandemic levels. Similarly, only 7.9% of respondents think buying a home is a bad or somewhat bad investment, down from 9.9% a year ago.
Additionally, the share of Americans who think they will move to a different primary residence in the next 12 months or in the next three years both dropped to series lows of 15% and 24.9%.
One big reason why homeowners may be reluctant to move to another primary home is because of their current mortgage rate, which is likely lower than the prevailing rate now or the expected rate 12 months from now.
According to Redfin, 85% of homeowners had a rate below 6% as of September 2022, Yahoo Finance previously reported.
The rapid rise in rates has also tanked the majority of homeowners’ chances of refinancing. Only 4.1% of respondents said they expect to refinance their mortgage in 12 months, down from 7.7% a year ago and marking a record low since the survey started in 2014.
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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