Almost Half of Americans Expect Higher Mortgage Rates and Higher Home Prices

new-homeThe latest national housing survey conducted by Fannie Mae shows that many Americans expect to see both higher mortgage rates and rising home prices over the next year.  It will be interesting to see how this paradox unfolds since an increase in mortgage rates has typically made housing less affordable to buyers.

One scenario under which housing prices can rise despite an increase in mortgage rates is if personal incomes outpace increased monthly mortgage payments due to rising interest rates.  Despite the fact that the real median income in the United States has been stagnant for decades many Americans are optimistic about the future.

According to the Fannie Mae October 2014 National Housing Survey, 45 percent of survey respondents expect their personal financial situation to improve over the next year, up by seven percentage points from a year ago.  Only 10 percent expect their financial situation to deteriorate over the next year.  Consumer sentiment still appears somewhat subdued as only 40 percent of consumers think the economy is on the right track which is a 13 percentage improvement from the same time last year.

It’s not difficult to understand why so many Americans think the economy is on the wrong track.  It always about the money and the real median income of Americans is lower than it was in 1989 and down sharply since 1999.  A healthy housing market is dependent upon consumers having sufficient income to service the mortgage debt required to finance a home purchase.  Based on the current trend in median incomes more Americans than ever remain locked out of home ownership based on the inability to qualify for mortgage  approval due to insufficient income.

Other highlights of the Fannie Mae housing survey include the following and highlight the income and wealth disparities that will always exist in a capitalistic society.

  • The number of respondents stating that their income is “significantly higher” than a year ago was 25 percent.
  • The number of respondents expecting their financial situation to improve over the next year increased to 45 percent.
  • The number of respondents reporting significantly higher household expenses came in at 36 percent.
  • 44 percent expect housing prices to go up over the next year.
  • 48 percent expect mortgage rates to increase over the next year.
  • 65 percent think it is a good time to buy a house.

The Fannie Mae survey portrays a housing market out of the intensive care unit but still in the process of recovery from the financial crash of six years ago.  While many Americans have prospered since the housing crash, incomes for many has remained stagnant.  A full economic recovery for the United States will remain elusive until a solution is found to reverse falling median household incomes.

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