A sign advertising a home for sale is displayed outside a Manhattan building on April 11, 2024 in New York City.
Spencer Platt | Getty Images
The dream of homeownership is becoming more out of reach for renters, with rising housing costs and rising interest rates standing in the way of America's housing dream, according to a New York Federal Reserve survey on Monday.
The proportion of renters as of February with hopes of “housing mobility,” or renters’ belief that they will one day be able to buy a home, fell to a record low of 13.4% in the central bank’s annual housing survey for 2024.
This is down from 15% in 2023 and far from the series high of 20.8% in 2014.
The pessimism about future prospects comes amid a host of factors that conspire against the possibility of renters being able to transition to homeownership.
For example, about 74.2% of renters viewed getting a mortgage as somewhat or very difficult, which the Federal Reserve Bank of New York said has “deteriorated significantly” from a level of 66.5% in 2023 and 63.1% in Year 2022.
Moreover, mortgage rates have remained high by historical standards. A 30-year fixed-rate mortgage now carries an average borrowing rate of 7.22%, the highest since late November 2023, according to Freddie Mac.
Housing affordability improved slightly, with the median price in February reaching $388,700, the highest level since November, according to the National Association of Realtors. The NAR's Housing Affordability Index was 103 in February, down slightly from January but still at high levels with average monthly housing payments at $2,040.
Survey respondents expect home prices to rise 5.1% over the next year, nearly double the expected rate of 2.6% in February 2023 and higher than the pre-pandemic average of 4.2%.
Despite the odds that the Fed will cut interest rates before the end of 2024, survey respondents believe mortgage rates will only rise. Projections for a year from now indicate that borrowing costs will reach 8.7% and 9.7% within three years, both surveys record.
There's not a lot of good news regarding leasing either. Survey respondents expect rental costs to rise 9.7% over the next year, an increase of 1.5 percentage points from last year's survey and the second highest in the chain's history.
The results come a week after the Federal Open Market Committee voted in favor of keeping benchmark interest rates steady while noting that there was a “lack of further progress” in its efforts to reduce the annual inflation rate to 2%.
Futures prices indicate that the Fed will begin cutting interest rates in September, with another cut likely to come in December.
