Mortgage Rates

Greater Charges, Fewer Refis, Extra Purchases


Key highlights from this report:

  • A new mortgage forecast suggested we could see higher rates in 2022.
  • The MBA forecast that 30-year lending rates could reach 4% by the end of 2022.
  • You expect this to result in a significant decline in mortgage refinancing.
  • Surprisingly, the group forecast an increase in purchase credits for the next year.

On October 17th, the Mortgage Bankers Association (MBA) released its annual forecast for the mortgage industry and housing market. The industry group offered forecasts for 2022 and through 2023.

The biggest takeaway from their latest mortgage rate forecast has to do with a gradual rise in the cost of borrowing. The MBA’s research team expects the average interest rate on a 30-year home loan to rise steadily over the coming quarters, reaching perhaps 4% by the end of 2022.

As a result of this (projected) rise in interest rates, their forecast also predicts a sharp decline in mortgage refinancing activity. And that is logical. Historically, when interest rates rise, we tend to see a decline in home refinancing loans.

Current mortgage rate trends as of October 2021

Before we rethink MBA’s mortgage forecast for 2022, let’s start with a quick rundown of where we are now.

On October 19, the average interest rate on a 30-year home loan was 3.05%. This is based on the weekly national survey by Freddie Mac, the state-sponsored company that buys loans from lenders.

The graph below shows the average mortgage rates for three popular home loans: 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, interest rates have been falling more or less steadily over the past three years. But on the right you can see where the downtrend stopped and prices started to “float”. On the right hand side, which represents the last few weeks, you can see the beginning of an increase.

Price table label

When the survey chart shown above was released in mid-October, Freddie Mac’s researchers added the following statement:

“The 30-year fixed-rate mortgage has risen to its highest level since April. As inflationary pressure builds up due to the ongoing pandemic and the tightening of monetary policy, we expect a further slight upturn in interest rates. “

Freddie Mac’s statement above is just one of several mortgage rate projections for 2022 that predict an increase in the cost of borrowing. This could cool off on some property markets across the country, especially the more expensive ones that are already crowding out many buyers.

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

As mentioned earlier, the Mortgage Bankers Association forecast that the average interest rate on a 30-year home loan would rise to 4% by the end of 2022, the third week of October.

To quote the October 17th MBA report:

“MBA’s baseline forecast is for mortgage rates to rise, with the 30-year fixed-rate mortgage expected to be 3.1% by the end of 2021 before rising to 4.0% by the end of 2022.”

In addition to an increase in borrowing costs, the MBA mortgage rate forecast predicts a significant decline in home refinancing activity in 2022.

They expect refinancing lending to decrease 62% next year compared to 2021. The industry group estimates refinancing lending will amount to $ 2.26 trillion in 2021, followed by $ 860 billion in 2022.

That prediction goes hand in hand with their mortgage rate forecast for 2022. As home loan 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 refinancing candidates.

More purchase credits next year?

The only aspect of this forecast that doesn’t make sense is purchase credits (which are used by home buyers).

MBA predicted that commercial mortgage lending would grow 9% in 2022 and hit a new record of $ 1.73 trillion. Given the sharp rise in home prices that has frustrated many buyers, this doesn’t seem intuitive.

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

Granted, this is a mortgage prediction – not a certainty. It’s an informed outlook based on current trends in the housing market and the economy. There is no way to predict future mortgage trends with complete accuracy. However, the general consensus among the MBA and other forecasters is that borrowing costs will increase to some extent by 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 drives government bond yields higher.”

This is not the only trend borrowers should watch out for. The latest forecasts suggest that property values ​​will continue to rise in the next year as well.

Rising prices are an additional problem for buyers

Rising home prices are another concern for US buyers, according to Zillow, US home prices have increased more than 18% in the past 12 months. That’s miles above historical averages that go back 30 or 40 years.

Many forecasters predict that prices could rise more slowly in 2022 than last year. From a housing and economic point of view, that would be a welcome change. But in most U.S. cities, home values ​​will almost certainly continue to rise in the coming months – to some extent.

Add in the 2022 mortgage rate projections that predict higher borrowing costs and you could make a strong case for buying a home sooner rather than later. Those who put off their purchases may pay a price for it. Literally.

Disclaimer: This article contains forward-looking views regarding mortgage and residential real estate market trends. Such predictions are reasonable and should be treated as such. The Home Buying Institute makes no statements about future housing conditions or economic conditions and trends.