Americans Expect Mortgage Rates to Top 8% in a Year

  • Americans expect mortgage rates to have topped 8% within a year, according to a survey by the New York Fed.
  • That’d be their highest level in nearly a quarter of a century and compares with 6.4% today.
  • Households are also bracing for a slowdown in house-price growth, the survey showed.

Americans expect mortgage rates to spike to their highest level in nearly a quarter of a century and for growth in house prices to carry on slowing over the next year, according to new research out Tuesday. 

Households are predicting that mortgage rates will soar from 6.4% to 8.4%, the latest edition of the New York Federal Reserve’s annual SCE Housing Survey showed.

Average 30-year fixed-rate mortgages last hit 8.4% in February 2000 in the US, according to data from Freddie Mac — meaning that Americans think the cost of borrowing to buy a home will hit a 24-year high next year.

They’re forecasting that mortgage rates will soar after a year in which the Federal Reserve raised interest rates from near-zero to around 5% in a bid to tame red-hot inflation, which is still running way clear of the central bank’s 2% target. Mortgage rates tend to rise when the Fed lifts borrowing costs.

There could be some relief ahead for prospective homebuyers despite Americans’ gloomy mood.

That’s because the majority of traders expect the Fed to pause its rate-hiking campaign at its next meeting, according to the CME Group’s FedWatch tool. That move would offer some relief to the embattled US regional banking sector, under pressure after the collapse of Silicon Valley Bank.

Americans polled by the New York Fed also predicted that house prices will rise just 2.6% over the next year. That marks a sharp dropoff from the 7% rally expected in the February 2022 survey.

The latest edition of the S&P CoreLogic Case-Shiller Index, released Tuesday, showed that home prices fell for a seventh consecutive month in January and rose 3.8% over the past year. The index tracks house prices across the US.

Yale economist Robert Shiller, whose analysis with Karl Case formed the basis for the Case-Shiller Index, said Monday he expects houses to become cheaper over the next six months due to an expected slowdown in US economic growth.

“It’s easy to forecast the short-run in the housing market, if you’re a long-term buyer it’s not clear,” he told CNBC’s “Closing Bell: Overtime”. “Home prices are very, very high by historical standards.”

“I would extrapolate the downturn somewhat — it’s going to continue,” Shiller added. “Maybe if you have a good chance to delay your purchase, it might be a good time to do it.”

“It might get a little cheaper after another six months.”

Read more: House prices are still very high – so hold off on buying as the US economy will keep struggling, Yale economist Robert Shiller says