In looking at the 2022 real estate and mortgage rate forecast, I’ll analyze what’s driving the real-estate market and what should impact mortgage rates over both the long and short term.
Similarly to 2021, the biggest issue will be finding enough homes for buyers, as housing inventory is still near all-time lows throughout much of the country. With that said, inventory has shown improvement for buyers over the last 3-4 months.
At the same time, because of today’s historically low mortgage rates (which are rising), housing affordability is still at a good level, even with the increases in home prices and rates. This is good news for buyers.
Interest rates are up in 2022…and that’s expected to continue – but it’s important to understand that rates are still historically VERY low.
Real Estate
Inventory
The total supply of available homes for sale will continue to be the biggest issue in 2022.
Per Zillow’s chief economist: “We predict that the current sellers’ market will continue into 2022, driven by the same factors that drove up home values by double-digit percentages in 2021…”
“A tight supply of for-sale homes, plenty of millennial and baby boomer buyers competing for those homes, low mortgage rates, and a shift toward remote work that opens new possibilities for home shoppers.”
Fortunately, there are a few bright spots, as new homes are being built at a faster pace.
“With more housing inventory to hit the market, the intense multiple offers will start to ease,” National Association of Realtors (NAR) economist Lawrence Yun said recently. “Home prices will continue to rise but at a slower pace.”
According to the NAR, new-home sales are forecast to rise to 920,000 in 2022, up from last year, which is expected to have been around 800,000. Existing-home sales are anticipated to dip to 5.9 million, down from last year, which is expected to have been around 6 million.
Appreciation
Home prices escalated very quickly in 2021. The national median home price hit $362,800 in June, an all-time high, according to the NAR. The Case-Shiller home price index peaked in August when prices rose 19.8 percent year-over-year that month!
Zillow’s forecast calls for an 11% increase in home values in 2022. That’s down from the 19.5% jump projected for 2021, but still among the strongest years since Zillow began tracking home values.
With that said, our forecast for 2022 is continued appreciation, but not as quickly. Most experts believe that home values will rise between 7% to 11% in 2022.
Interest Rates
Mortgage rates have risen over .375% during the first 10 days of 2022, due to the market’s concern of increased inflation, government spending, and debt.
This pattern will most likely continue into the first half of 2022.
Inflation Fears
Mortgage rates are affected by inflation because inflation erodes the buying power of the fixed return that a mortgage holder receives. Interestingly, the best way to combat inflation is by raising the Fed Funds Rate. Because inflation is already over 7%, mortgage rates are climbing in response.
The Federal Reserve and its President, Jerome Powell, stated they are forecasting multiple rate increases this year AND a tapering of their balance sheet in 2022, which they believe will limit inflation and begin to bring it down closer to their 2% target.
Many experts hope these actions will bring DOWN interest rates later in the year, possibly into the low 3% range once again. This will depend on how effective the Federal Reserve is in fighting this current inflation battle.
Silver Lining for Certain Buyers
Rising rates might not necessarily bad news for some buyers. The “silver lining” of higher mortgage rates is that fewer speculative buyers will be in the market, because there is less money to be made. That could actually help first-time buyers.
“When you have higher interest rates, it becomes more of the people who buy homes just to live in them,” says Skylar Olsen, the principal economist at Tomo. “That’s something the market will benefit from, coming back down to sanity.”
Mortgage Rates in 2022
NAR’s Yun projects that mortgage rates will increase to 3.7 percent in 2022, pushed up by persistently higher inflation.
Economists at the Mortgage Bankers Association predict that the 30-year fixed-rate mortgage will rise to 4 percent in 2022.
“Mortgage lenders and borrowers should expect rising mortgage rates over the next year as stronger economic growth pushes Treasury yields higher,” said Mike Fratantoni, MBA’s chief economist.
Greg McBride, the chief financial analyst at Bankrate.com, predicts that the 30-year fixed mortgage rate will peak near 3.75% during the year and fall back to 3.5% by the end of the year.
“Long-term rates will move higher in the first half of the year, but by the close of 2022, concerns about slowing economic growth will be unwinding that and bringing them back down,” he said. “This will be higher than where mortgage rates started the year but ending at levels previously unseen before the pandemic began in 2020. The drop-off in refinancing activity will mean lots of competition among lenders thirsting for volume and plenty of lenders with rates much better than the average.”
In Conclusion
2022 looks to be a decent one for both buyers and sellers, although the market would clearly be considered a “seller’s market”, because inventory is quite low.
Also, we can expect mortgage rates to rise through the summer – possibly moving as high as 4%.
Although that’s higher than the lows we’ve seen over the last 2 years, a 4% mortgage rate is historically CRAZY low and something buyers should take advantage of!
To sum up the 2022 real estate and interest rate forecast:
- Mortgage rates will rise in the beginning of the year and could drop later in the year
- Housing inventory will continue to remain tight
- Home prices will continue to move upward, although at a slower rate than 2021
- Housing will still remain affordable, due to historically low mortgage rates
- Inflation will be the big “wild-card” factor and could change things
In reality, now is a fantastic time to purchase or refinance and take advantage of market appreciation and low mortgage rates. Contact me for more information, as it would by my privilege to help you.
