Consumers Expect Home Price Growth to Slow Significantly, Says NY Fed Study

If consumers were on a graph, and they are at least in the housing section of the Federal Reserve Bank of New York’s Survey of Consumer Expectations, then they just took a hard right and headed down.

The one-year expectation of home price growth in consumers’ own ZIP codes crashed from 7.0% in 2022 to 2.6% in 2023—the lowest figure since at least 2014. Lower than the five-year annualized expectation, which had never happened in the time frame.

Of 510 responses, 17.3% expected prices to drop by more than 5%, 27.7% thought there would be a decrease of between zero and 5%, 37.1% said 0 to 10% gain, and 17.9% thought more than a 10% increase. As the overall results would suggest, there was a heavy downward shift from 2022 to 2022.

But the expectations of rents were significantly different. There was still a fall from 2022, when the average outlook of consumers was an 11.5% gain. In 2023, the expectation is still 8.2%, the second highest figure since 2014.

When asked the percent chance that they would move from their primary residence in either one year or three, the average answers were 24.9% and 15.0% respectively. These were also at lows since 2014.

And asked the percent chance that they would buy if they moved in three years, the average answer was 63.0%, up from the 60.7% of 2022, though still lower than any other year since 2016.

The combination of answers suggests that there could be greater inclination on the part of consumers to purchase a home rather than rent. Up until recently, the steep increase in housing prices have made renting a more viable choice, according to the most recent analysis from Florida Atlantic University and Florida International University researchers.

“Home prices are down, but they are still too high and near record levels, so we expect further price corrections in the future,” Ken H. Johnson, a co-author and economist in FAU’s College of Business, said at the time. “While rents also are on the rise, consumers are better off financially in most areas if they hold off buying until home price declines level off.”

The expected shift in pace between rent and house prices, if it happened, might convince more consumers to purchase a home and start the market moving again. However, three factors might moderate the expectation. First, asking consumers what decision they might make in the future is one of the least reliable response types in market research. Second, while expectations can push what consumers will be willing to pay, there is no guarantee that supply and pricing will cooperate. Third, the pandemic jump in prices was so high that even sharply slowing growth in housing prices while rents went up might not provide enough of a correction to make ownership a financial advantage. Mortgage rates would still likely have to decline enough.