Rising Unaffordability Is Causing Renters To Abandon Hope Of Ever Owning A Home

After two years of a buying frenzy that has become self-reinforcing as investors and speculators have sought to cash in on the trend, it looks like American homebuyers are getting ready to throw in the towel.

The New York Fed’s 2022 SCE Housing Survey (readers can find a breakdown on the New York Fed’s blog, Liberty Street Economics), released Monday, showed the that respondents believe they would be less likely to buy if they were to move compared to the year-ago survey, marking the first annual decline since the series began in 2014. Compared with last February, the drop amounted to a decline of 10 percentage points.

The drop was driven by the current renter segment; the Fed’s data showed renters were much less likely to buy compared to renters in the 2021 survey. The survey also showed that while respondents see prices for homes in their zip codes rising over the coming year, they expect that pace to cool five substantially over the next five years, slowing from an average of nearly 6 percentage points, to 2 percentage points, both on an annualized basis.

What’s more, the share of respondents stating that they believe housing to be a “good” or “very good” investment fell slightly to 71% compared to its series high of 73.6% in February 2021.

Put another way, this essentially confirms something that we have been warning about for months now. Housing affordability has been crashing by the most on record, as the surge in prices over the last two years has left first-time buyers at a tremendous disadvantage.

The data confirm something that the NAR, BofA and others have warned about as well. For example, BofA in particular has warned that the housing-market euphoria seen last year seemed unlikely to continue. Their reasoning relies mostly on the pickup in mortgage rates, which have surged to one record after another as bond yields relentlessly moved higher.

The drop in affordability has already corresponded with a drop in home sales.

And for what it’s worth, consumers are bracing for rising rents both over the coming year and during the years to come.

But of all the charts published by the Fed to illustrate the survey data, this probably does the best job: the percentage of renters who believe they will ever own a home has also fallen to the lowest level since the survey began.

So, not only are renters bracing for surging rents in the years to come, but many are giving up hope of ever owning a home.