Higher prices, fewer Refis, more purchases

Highlights of this report:

  • A new mortgage forecast suggested we may see higher rates in 2022.
  • The MBA has predicted that 30-year loan rates could reach 4% by the end of 2022.
  • As a result, they expect mortgage refinancing to drop dramatically.
  • Surprisingly, the group predicted an increase in purchase loans next year.

On October 17, the Mortgage Bankers Association (MBA) released its annual forecast for the mortgage industry and housing market. The industrial group has proposed forecasts for 2022 and extending until 2023.

The main takeaway from their latest mortgage rate forecasts is a gradual increase in borrowing costs. The MBA research team expects the average 30-year fixed mortgage interest rate to rise steadily over the next few quarters, possibly reaching 4% by the end of 2022.

As a result of this (expected) rate hike, their forecast also calls for a sharp decline in mortgage refinancing activity. And it makes sense. Historically speaking, we tend to see a decline in home refinance loans as rates rise.

Current mortgage rate trends, October 2021

Let’s start with a brief overview of the current situation, before reviewing MBA’s mortgage forecast for 2022.

As of October 19, the average 30-year fixed mortgage rate was 3.05%. This is based on the weekly national survey conducted by Freddie Mac, the government-sponsored company that buys loans from lenders.

The graph below shows the average mortgage rates for three popular mortgage options: the 30-year fixed loan (blue), the 15-year fixed loan (green), and the 5/1 adjustable ARM loan (orange). It was released by Freddie Mac in mid-October.

As you can see, rates have fallen more or less steadily over the past three years. But to the right, you can see where the downtrend stopped and where rates started to ‘hover’. On the far– right side, which represents the last weeks, you will notice the start of an ascending climb.

Wording of the rate table

When releasing the mid-October survey graph pictured above, researchers at Freddie Mac included the following explanation:

“The 30-year fixed rate mortgage hit its highest level since April. As inflationary pressure intensifies due to the ongoing pandemic and tightening monetary policy, we expect rates to continue rising slightly. “

Freddie Mac’s statement above is just one of many mortgage rate forecasts for 2022 predicting increased borrowing costs. This could have a cooling effect in some housing markets across the country, especially the more expensive ones where many buyers are already get kicked out.

MBA forecast: 30-year loans reach 4% by end of 2022

As previously mentioned, the Mortgage Bankers Association predicted that the average 30-year fixed mortgage rate would drop to 4% by the end of 2022. That would be a bit higher than we are now (3, 05%), during the third week of October.

To quote the MBA report of October 17:

“MBA’s baseline forecast calls for mortgage rates to rise, with the 30-year fixed rate mortgage ending in 2021 at 3.1% before increasing to 4.0% by the end of 2022. “

In addition to rising borrowing costs, the MBA mortgage rate forecast for 2022 predicts a significant decline in real estate refinancing activity.

They expect loan refinancing arrangements to decline 62% next year, compared to 2021. The industry group estimated that refinancing arrangements will total $ 2.26 trillion in 2021, followed by 860. billion dollars in 2022.

This forecast goes hand in hand with their mortgage rate forecast for 2022. As mortgage borrowing costs rise, refinancing activity tends to decline. Higher interest rates would mean fewer homeowners could benefit from a refi. In other words, it reduces the number of applicants for refinancing.

More origins of purchase loans next year?

The only aspect of this forecast that does not seem logical concerns purchase loans (used by home buyers).

MBA has predicted that purchase mortgage originations will increase 9% in 2022, reaching a new record high of $ 1.73 trillion. This seems counterintuitive, given the steep rise in home prices that has frustrated many buyers.

In support of this outlook, they pointed to “strong demand for buyers from millennial households, households looking for more space, and persistently low mortgage rates.”

Certainly it is a mortgage forecast – not a certainty. It is an informed perspective based on current trends in the housing market and the economy. There is no way to predict future mortgage trends with complete accuracy. But the general consensus among MBAs and other forecasters is that borrowing costs will rise up to some degree as we head into 2022.

According to Mike Fratantoni, chief economist of the MBA:

“Mortgage lenders and borrowers should expect mortgage rates to rise over the next year as stronger economic growth pushes Treasury yields higher.”

This is not the only trend borrowers should watch out for. Recent forecasts suggest that home values ​​will also continue to climb next year.

Rising prices, an additional concern for buyers

Rising home prices are another concern for buyers in the United States According to Zillow, home values ​​in the United States have risen by more than 18% in the past 12 months. That’s miles above historical averages going back 30 or 40 years.

Many forecasters predict that prices may rise more slowly in 2022 than they have in the past year. It would be a welcome change from an overall housing and economic perspective. But in most US cities, home values ​​will almost certainly continue to climb – to some extent – over the next several months.

Add in the 2022 mortgage rate forecast that calls for higher borrowing costs, and you could make a strong case for buying a home sooner rather than later. Those who postpone their purchases could pay the price. Literally.

Disclaimer: This article contains forward-looking opinions regarding mortgage and housing market trends. Such predictions are the equivalent of informed opinion and should be treated as such. The Home Buying Institute makes no claims about future housing or economic conditions and trends.

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