Whether you’re a first-time buyer or a seasoned homeowner looking to refinance, knowing the state of the mortgage market is important. Let’s look at the current situation and break out our crystal ball, with some help from the insight of experts, to predict how the market trends will move.
Increased Rates Are Likely on the Horizon
Recent signaling from Washington, D.C. suggests that the Federal Reserve will increase interest rates; few industry leaders suspect that the historically low mortgage interest rates we’ve seen over the past year will hold. Factors like the debt ceiling and the ever-looming specter of rising inflation suggest that now is a good time to get in on a good mortgage rate.
Both thirty-year-fixed and fifteen-year fixed mortgage rates have seen incremental rises of late, not raising any alarm bells, but pricking up the ears of those who watch the market carefully. Often carrying higher interest rates with smaller monthly payments, thirty-year-fixed mortgages have averaged at around 3.2% approaching 2022, while fifteen-year-fixed loans, with higher monthly payments, have been in the 2.5% range. With rates currently inching up, these deals won’t likely be around in the first quarter of 2022.
So what should you expect the housing market to do in 2022?
That answer first bears a look back at 2021, which had plenty of pitfalls for both first-time and veteran homebuyers. The housing market outpaced the overall economy, creating a super-charged environment with bidding wars on homes and a record escalation of prices. Low mortgage rates and low housing supply created conditions ripe for high home prices. But things won’t stay red hot forever, so we’re likely to see home inventory increase and the fierce competition of late decrease.
Then are we making a steady march from a seller’s market to a buyer’s market? Economists say not so fast. Yes, we will see a rise in the number of available homes. Also true, buyers will find favorable financing options and mortgage rates in the near future. But neither reason is apt to cause a seismic shift in the housing landscape. Rather, housing market predictions say we’ll see a more balanced environment where buyers are better positioned in 2022 than they were in 2021.
2022 Looks to Be the Old Normal
As the coronavirus pandemic upended nearly every aspect of life over the past year and more, the housing market, too, was out of whack. Buyers were paying way above asking prices and dizzying numbers of offers would descend on homes. Experts predict we’re going to see a return to the normal way of doing business, with buyers making opening bids that are below asking prices — how, historically, things are usually done.
From the buyer’s perspective, the current outlook of the market is something of a good news/bad news situation. On the plus side, increased housing inventory means increased choice. But if you’re betting that this drop in competition will lead to a drop in prices, you’re probably wrong. Analysts, including CoreLogic, predict that we’ll still see moderate rises in home prices despite the moderate decrease in demand. But the “bad” news isn’t all that bad — this rise in home prices looks like it will be at a slower pace than the increases we saw in 2021.
Will the low mortgage rates hold?
Probably not. The record low interest rates we saw in 2020 and 2021 have only one way to go: up. The Federal Reserve is suggesting a shift in its purchasing of mortgage-backed securities, which has helped to keep mortgage rates low and stable. Nobody has a crystal ball to divine how high mortgage rates will rise, but Freddie Mac forecasts that rates could get close to 4% in 2022.
A New Generation Discovers the Suburbs
Walk through the downtown of almost any major city in America and you’ll see wellsprings of urban renewal; this suggests cities are the hotbeds of homeownership going forward. But the data suggests otherwise. Findings by industry experts such as Realtor.com predict that the suburbs are where we’ll see the biggest growth in mortgage lending. And for that, we can largely thank one group: millennials. They’re not so young anymore, with millions of millennials now in their thirties and looking to start families. That means they’re turning to the suburbs for good schools and more space to spread out with the kids.
AI Tech is Speeding Things Up
Gone are the days when a prospective homeowner was limited to the listings of a local real estate agent. So too we say goodbye to breaking out a calculator with a pen and paper to figure out mortgage payments. Artificial intelligence has changed all that and shows no sign of slowing. It’s not that AI is doing anything much different from traditional techniques, say, in refinancing mortgages or in doing home searches. It’s the stunning speed and breadth at which AI works that’s so revolutionary. From evaluating a home’s price compared to others in the market, and across other markets, to predicting the likelihood of a sale and calculating a range of mortgage options, AI can do it all in mere seconds.
Climate Change Will Have Its Say
Recent findings by the Research Institute for Housing America of the Mortgage Bankers Association suggest that climate change will impact the mortgage industry. The ever-increasing extreme weather events we’ve seen will almost certainly continue, and will likely get even more destructive. We’re going to see more damage to homes and lenders will be taking this risk into consideration. This could very well mean we’ll see some form of the controversial practice of blue-lining, where mortgage lenders draw lines, literally or figuratively, around neighborhoods with higher risks due to natural disasters, rising temperatures, or other climate-related factors.
But there’s no reason to fear the future of the mortgage market. Some fluctuations and concerns aside, mortgage rates are relatively low, the housing supply seems steady, and so far there doesn’t look to be anything catastrophic on the horizon to sink an overall sunny outlook.