NEW YORK – A new survey on the housing market has found that two-thirds of renters believe it would be "somewhat difficult" or "very difficult" to obtain a mortgage if they wanted to buy a home.
The survey, conducted by the Federal Reserve Bank of New York, is part of the broader Survey of Consumer Expectations (SCE), shows that home price growth expectations remained stable relative to last year. The majority of households continue to view housing as a good financial investment, though with some differences across regions. Homeowners view themselves as more likely to make investments in their homes, and renters’ perceived access to mortgage credit has tightened somewhat.
Key findings from the February 2018 Survey include:
Home Prices/Rents
- Average home price change expectations at both the one- and five- year horizons remained stable relative to last year. For example, the mean one-year ahead expected change in home prices in 2018 was 4.65%, which is only slightly below last year’s 5.1% and the second-highest level since the inception of the survey in 2014. Five-year growth expectations average 3% per year, which is slightly higher than last year, the report states.
- Households’ perceived downside risk in home prices slightly decreased. For instance, at the five-year horizon, the average probability of home prices decreasing declined from 29% in 2017 to 27%. Households in the Northeast perceive higher downside risk than those in other regions.
- Rent change expectations decreased at both the one- and five- year horizons, by 0.4 and 0.2 percentage points, respectively. They now stand at +7.3% (one year) and +4.3% (five years, annualized), the study shows.
Housing Outlook
- Attitudes toward housing as a financial investment became more positive than they already were: 65% of all respondents think that buying property in their zip code is a “very good” or “somewhat good” investment, compared to 60% in 2016. Only 10.6% think housing is a “bad” investment. Enthusiasm about housing as investment is particularly pronounced among younger, more educated (bachelor’s degree or more), and higher-income (annual income of $60,000 or more) households. In the West, 70% of households think buying property is a “good” investment, while only 56% do so in the Northeast.
- The average reported probabilities of moving over the next year and over the next three years have been on a slight but steady downward trend and now stand at 17% and 29%, respectively. The average probability of buying a home, conditional on moving within the next three years, inched upward from 63.6% in 2017 to 63.9% this year, the study shows.
Mortgage Rates
- On average, households perceive mortgage rates, both for themselves and nationally, to be roughly unchanged compared to one year earlier. This perception is broadly in line with actual mortgage rates, the Fed said.
- Average expectations of future mortgage rates similarly remained steady compared to 2017 at both the one- and three-year ahead horizons, standing at 5.5% and 6.5%, respectively. However, the reported probability that mortgage rates will increase over the next year increased from 52% to 55%. Owners assign a higher likelihood to a mortgage rate increase than renters, the report shows.
Owners
- The average probability of mortgage refinancing over the next year declined to 8.9%, from 10.2% in 2017.
- The average probabilities of investing at least $5,000 in the home over the one- and three-year horizons increased relative to last year and are now at their highest levels since inception of the survey, the report shows. The average probability for the one-year horizon stands at 34.4%; the corresponding value for the three-year horizon is at 48.7%. The increase was particularly pronounced for homeowners aged 50 or less.
Renters
- Renters continue to perceive obtaining a mortgage (if they want to buy a home) as difficult, with 67.5% stating that it would be “somewhat difficult” or “very difficult” to get a mortgage. This share is higher than in 2017 (65%) and there was a notable increase in the share of households thinking it would be “very difficult” to obtain a mortgage (36%, compared to 24% in 2017). These movements held across demographic groups, although they are most pronounced among lower-income, lower-education renters, the report shows.
- Renters continue to report a strong preference for owning homes, although it weakened relative to the previous two years. The share of renters who report preferring or strongly preferring to own instead of rent (if they had the financial resources to do so) stood at 67.3%, compared to 72.3% in 2017 and 74.1% in 2016. The decrease in preference for owning is primarily driven by renters aged 50 and above.
- Similarly, renters’ average stated probability of owning a primary residence at some point in the future decreased from 55.2% to 49.5%, but this decrease was almost entirely driven by older renters, the report shows.