Will Housing Costs Rise in 2024? Homebuyers and Renters Think So – Investopedia

Both homebuyers and renters are bracing for more inflation in the real estate market this year, reversing some of their optimism that housing prices could slow.

In its 2024 housing survey, the New York Federal Reserve found consumers expect home prices to grow by 5.1% in the year ahead, the second-highest reading in the annual report which was first released in 2014. Renters expect even more of a hike, with survey respondents pointing to a 9.7% annual rise in rent prices, coming after last year’s survey showed both renters and homeowners expected prices to cool. 

Mortgage Rates Moving Higher, Investment Potential Lower

The survey showed that fewer people are seeing housing as an investment. The 67.1% of respondents that said it was a good investment to buy property in their zip code was the lowest in three years, though the sentiment is still above pre-pandemic levels. People viewing housing as a bad investment also increased. 

Renters are also losing faith that they will ever be able to buy a home. Renters said the chance they will ever own a home was 40.1%, the lowest in the history of the survey and down from 44.4% a year ago.

People could be losing interest in homebuying as it becomes unaffordable for many. Potential homebuyers have been contending with high home prices and surging mortgage rates for the past few years, resulting in unaffordable housing costs.

Consumers don’t expect that to change any time soon. They expect mortgage rates will be 8.7% in the next year and rise to 9.7% in three years. The survey results come as borrowing costs are moving higher this year, reversing the declines seen last fall to move back over the 7% threshold. 

Fewer Moving as Lock-In Effect Impacts Housing Market

The New York Fed also put out a study on the “lock-in” effect, in which homeowners with low mortgage rates are hesitant to sell their properties in a high interest rate environment. The study sought to find out if sellers would be more likely to move if they were able to keep their current mortgage rate.

Overall, 7.4% more respondents said they would move if they could keep their current rates. However, those with mortgage rates less than 3% were far more likely to say they would move if they could keep their current rate. However, the study’s authors said about half of respondents didn’t change their opinions on moving due to mortgage rates.

“We interpret this to mean that mortgage rates are not a primary factor in most respondents’ relocation plans for the next three years but are a large constraint for a relatively small but significant share of homeowners,” the study said.