The “American Dream” of homeownership is starting to look more and more like a nightmare, as inflation rises and the Federal Reserve holds off on lowering interest rates. The average fixed rate on 30-year mortgages has now surpassed 7.2% after five consecutive weeks of increases, with consumers expecting rates to climb even higher in the coming years.
A survey from the New York Federal Reserve revealed that consumers anticipate mortgage rates nearing 9% over the next year and close to 10% over the next three years. Additionally, households are bracing for a rebound in house prices after a decline last year, while rental affordability is also becoming a growing concern.
In New York City, where housing costs have always been high, rents grew seven times faster than wages last year, according to a Zillow analysis. The struggle to keep up with housing demand in the city, combined with the Federal Reserve’s efforts to balance a strong labor market and contain inflation, is exacerbating the rental affordability crisis in the city.
Economists are divided on whether the Federal Reserve’s actions in response to rising inflation would have made a difference in the current situation. While some believe that earlier rate hikes could have curbed inflation and kept mortgage rates lower, others argue that supply disruptions were a major driver of inflation.
The current scenario poses a risk for many Americans who may now have to delay their plans to buy a home and miss out on potential long-term wealth accumulation through home appreciation. The delicate balancing act of the Federal Reserve in managing the economy and inflation will continue to impact the housing market and consumers’ ability to achieve the American Dream of homeownership.