Will Mortgage Rates Increase in 2022?
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nformation about the rise of mortgage rates is spreading in the United States as inflation puts pressure on interest rates while the US economy is recovering from the Covid recession. We can only predict how high mortgage rates will get in 2022. 2021 witnessed the growth of the average 30-year fixed mortgage rate by 0.5%. Experts predict that the 30year rates will increase by 3% high to 4% low level in 2022. According to housing marketing analysts, mortgage rates will gradually increase in 2022. While there are predictions that the rise will be gradual as the year proceeds, there is no clear consensus on how much it will rise and when. Some of the reasons that will cause the rise will be the possibility of new COVI-19 variants, which continue to negatively impact the country’s economic progress. Other factors that play a significant role in the rise are; inflation, shortage of labor, material, energy supply, and the government’s increasing interference in the housing market. THE ROLE OF THE FEDERAL RESERVES The Federal Reserves has changed its plans of keeping the federal funds rate low for years due to the COVID-19 recession, which began in 2022. However, in its last meeting in December, the Federal reserves signaled three moves that will result in upward pressure on mortgage rates. Despite announcing 62 | FEBRUARY 2022
earlier in 2021 that there will be no increases in 2022. The recent announcement made by the federal reserves has placed pressure on mortgage rates. Federal reserves announced its plans to raise short-term interest rates three times in 2022 and will also speed up the unwinding of the bond market. Both of these actions are expected to help rates tick higher. The increasing government interference will play a significant role in the increase as inflation emerges as a threat to the economy and the need of the Fed to combat inflation aggressively, and one of the primary ways is enforcing higher rates. The mortgage rates may go up by 0.25% to 0.5% in the first few months of 2022. While the federal funds rate doesn’t directly affect mortgage rates, there is a strong correlation between the rate on 10-year Treasury bonds and the 30-year mortgage. That spread widened in the spring and summer. The typical gap between the 10-year government bond and the 30-year fixed-rate mortgage is 1.5 to 2 percentage points. During the scary early days of the COVID-19 pandemic, that spread rose as high as 2.7 percent. The gap has since returned to normal. Generally, an improving economy correlates to rising mortgage rates. Economists and investors think the U.S. economy will maintain the high rates even after a rebound. However, housing economists say it’s unlikely that mortgage rates will soar. Mike Frantantoni, a Chief Economist, stated that Mortgage rates will rise to 4 percent by the end of 2022 and can be more volatile as the Fed backs away from the market. While the increased mortgage rates will lead to a drop in refinances, everyone looks forward to a strong economy that will increase home sales in 2022. While mortgage rates will rise enough to discourage refinancing, they’ll remain low enough to make homebuying attractive. There will also be a recordbreaking purchase mortgage volume in 2022 and 2023. We can also look forward to moderate home price growth and a solid housing market. If you have always wanted to be a homeowner but haven’t gotten a house yet, our agents will guide you through the process. All you have to do is reach out to Eric Lawrence Frazier to access our housing programs.
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