Rising Mortgage Rates and Rental Costs in New York City Creating Housing Nightmare

2024-05-08 19:43:00

New York (CNN) — The “American Dream” of home ownership is starting to look more and more like a nightmare.

With inflation rising again, the Federal Reserve is not in a position to look at lowering interest rates at upcoming meetings. That helped push the average fixed rate on 30-year mortgages above 7.2% after five straight weeks of increases.

Consumers do not expect mortgage rates to fall anytime soon. Over the next year, they expect to rise to nearly 9%. In the next three years, they expect rates close to 10%. This is shown by a survey by the Federal Reserve of New York, published on Monday, which measures the expectations of consumers about the housing market.

In addition, households are preparing for a rebound in house prices over the next year, after they began to decline last year.

But that’s not all. Rent is also far from a bargain these days. According to a New York Federal Reserve survey, consumers are preparing for even bigger increases compared to the expected rise in mortgage rates next year.

The issue of rental affordability is particularly evident in New York, where housing costs have always been very high compared to other parts of the country, barring brief relief during the pandemic.

But what makes the burden even heavier is that rents in the city grew seven times faster than wages last year, according to a Zillow analysis released Tuesday. This is the biggest difference among the 50 largest metropolitan areas in the country. Nationally, however, Americans’ wages rose at a faster rate than their rents last year.

The Fed’s role: trying to preserve the strong labor market even though inflation is working against New York renters, Kenny Lee, an economist at Zillow-owned StreetEasy, said in a statement Tuesday. The reason for this is that the construction of new houses in the city is having great difficulties keeping up with the demand coming from the jobs available.

Would the situation be different if the Federal Reserve rushed to raise interest rates to curb rising inflation in 2022, when it reached its highest level in decades?

“Inflation may have returned to its target sooner if the Federal Reserve [las] there would have been an earlier hike,” Aditya Bhave, US economist at Bank of America, told CNN. If that happened, the central bank might not have to keep rates at their current high levels for so long .

That could help keep mortgage rates from rising as high as they are now because, as Minneapolis Fed President Neel Kashkari said in an interview on Bloomberg TV on Tuesday, housing is “traditionally the most sensitive sector of the economy .” “

However, Bhave said that “it is easier to see clearly and look back and much of the inflation that caused it to disrupt the supply that the Fed could not prevent.”

The flip side of the equation is that if the Fed had not kept interest rates at near-zero levels for two years, many current homeowners who benefited from low rates would not have been able to afford home ownership.

One of the dangers now is that many Americans who postpone their plans to buy a home will not be able to “participate in home appreciation, which could affect the long-term distribution of wealth,” he said. Have.