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Home Price Rises

Short-Term Expected Home Price Increases Accelerate, but Remain Stable in the Medium-Term

The Federal Reserve Bank of New York’s 2022 SCE Housing Survey reveals that anticipated changes in home values for the coming year rose relative to the same timeframe in the February 2021 survey, but expectations for the subsequent five years stayed steady. Households indicated that they would be less inclined to purchase a home if they relocated compared to a year before, marking the first yearly fall since the series began in 2014. This decline was driven by current renters, who were far less likely to purchase a home than 2021 renters. In addition, renters anticipate that rents would be significantly higher twelve months from now, with the anticipated rate of growth being more than double that indicated a year ago. The estimated price of rent five years from now increased at a slower rate than anticipated one year ago.

This is the ninth volume of the annual SCE Housing Survey, which has been conducted annually in February since 2014 as part of the larger Survey of Consumer Expectations. About one-quarter of the 1,242 respondents to the 2022 study are current renters, while the remaining three-quarters are homeowners. The results are given in an interactive web component of the SCE Housing Survey, which displays temporal trends for variables of interest for the entire sample as well as for specific demographic categories, including distinct breakdowns for owners and renters. Please refer to the summary of the survey methodology, the interactive chart guide, and the survey questionnaire for further information about the SCE.

The primary objective of the SCE Housing Survey is to collect extensive, high-quality data on the housing-related experiences, behaviors, and aspirations of consumers. The study collects information about the views and expectations of households regarding changes in property prices and rents, as well as their plans for future moving and purchasing, perceptions of mortgage rates, and the ease of obtaining a mortgage. In addition to eliciting preferences for ownership and renting, the poll includes geographic information to examine heterogeneity in replies.

Expectations for one-year home prices increase while those for five years remain unchanged.

Respondents to the survey evaluated the worth of a typical property in their zip code and predicted its value in one and five years. The subsequent figure depicts the annualized five-year progression of house price forecasts.

Home prices anticipate rapid home price growth in the near future.

Households expect home prices in their zip code to increase by an average of 7.0 percent over the next year, up from 5.7 percent in February 2021. Despite a countrywide increase in mortgage rates since the summer of 2021, this increase reflects the robust momentum of property values over the last eighteen months. In contrast, households continue to anticipate a yearly growth rate of 2.2% over the next five years. The disparity between one-year and five-year predictions implies that families anticipate high home price increase in the near future, but that prices will moderate in the long run.

The disparity between one-year and five-year home price predictions was widespread across age and education categories, but was most severe for households with an annual income of less than $60,000. Despite increasing outward movement from urban areas since the commencement of the pandemic (Ramani and Bloom,2021), urban and rural families expressed comparable short-and medium-term property price forecasts. We also discovered no significant variations between owners’ and renters’ short- and medium-term house price forecasts.

The disparity between one-year and five-year home price forecasts is consistent with homeowners’ views that mortgage rates would continue to rise in the foreseeable future. We asked respondents what they believed the typical mortgage interest rate on a thirty-year fixed-rate mortgage to be now, as well as one and three years from now. In comparison to pre-pandemic levels, anticipated one- and three-year mortgage rates were higher among respondents. The anticipated rate of 8.23 percent in three years is the highest level in the nine-year history of the series.

Home Prices vs National Average Perceived Mortgage Rate

Feb 2020 Feb 2022

Today 5.88 5.86

annually 6.06 6.68

Three years ago, 7.13 8.23

To determine if the anticipated slowdown in house prices over the medium term is attributable to a change in attitudes towards the desirability of property as an investment, we asked respondents how likely they would be to purchase vs rent if they were to relocate within the next three years. In addition, households said that if they relocated, they would be less likely to purchase a home than they were a year earlier. This was the first yearly fall in this trend since the poll began in 2014, and it was driven by existing renters, who in the February 2021 survey were around 10 percentage points less inclined to purchase than renters. We also inquired as to how respondents regarded the investment appeal of real estate relative to other financial ventures. The percentage reporting that real estate is a “excellent” or “very good” investment decreased to 71.0% from a series high of 73.6% in February 2021.

If they move within the next three years, renters are less likely to buy.

Renters become more pessimistic about the housing market when anticipated rent increases occur.

To determine why renters are less inclined to purchase a home if they were to relocate, we inquired about the impact of changes in home prices over the last year on their housing intentions. Twenty-two percent of households said that they had originally intended to buy a home, but now consider renting to be a better financial option. In the last year, almost 13% of respondents indicated that the recent increase in housing prices caused them to accelerate their home search. However, the majority of respondents either favored renting (36%) or stated they were waiting for costs to drop before purchasing (42 percent). We also polled renters about their likelihood of becoming homeowners in the future. The average probability dipped below 50% for the first time in the history of the series.

Renters see a lower probability of ever acquiring a home.

If renters who were once on the verge of purchasing a home no longer find homeownership alluring, the essential question becomes how rental pricing expectations are changing. We asked respondents to estimate the rental value of a typical home or apartment in their zip code, as well as the rent’s expected value in one and five years.

Households anticipate significant rent increases in the near future.

Households anticipate a significant increase in rents over the next twelve months: on average, respondents anticipate an 11.5 percent increase, compared to a 6.6 percent increase in the February 2021 poll. This increase was even more significant among existing renters, who anticipate that rents will increase by 12.8% compared to 5.9% a year ago. This is consistent with the theory that large rises in rent over the past several months are shaping short-term rent expectations. An yearly increase of 5.2% is currently anticipated for the cost of rent in five years, up from 4.4% one year ago.

We are also publishing a chart packet that outlines our home prices as a sample and provides summary data for a large number of additional survey items. Also included in this year’s poll were special modules on climate change and evictions, which we will report about shortly.