January — What Will 2022 Look Like for Mortgages?

Welcome to 2022 and while I’m sure each of us over the next week will inevitably write, type, text, or data, enter the wrong year somewhere 2022 is here and we’re ready.

This is the first time since 2018 where we enter a year not really having a line of sight as to what the first quarter is going to look like. That’s not always a bad thing since known uncertainty is better than being blindsided like we were in 2020.

The highest inflation reading in 40 years…

Inflation is still the hot button for mortgage rates and with a year-over-year reading being at 5.7% (the highest reading in 40 years) the core inflation data which we follow was at 4.7% (still at a 40-year high.) Most economists that I believe to have been historically accurate feel this will continue to increase until February which is when we’ll reach peak inflation.

What I think is around the corner…

I believe that the table is set for the Fed to start hiking rates in May which means that from February until the end of April we should expect volatility in rate and stock markets. When/If the Fed starts hiking rates in May that would curb inflation and while our instinct is to think hiking rates will make home loans go up, in this case, it should bring home loan rates down.

Inflation can move home loan rates much higher much faster than the Fed hiking their Fed Fund or Prime rate. What has really caught my eye as of late is the wide disparity between different agencies regarding their expected year-end average interest rates.

The Mortgage Bankers Association is projecting the average 30 Year Fixed rate to be 4% at the end of 2022. However, Fannie Mae is projecting 3.2% while Freddie Mac is projecting 3.5%. That’s a significant delta that tells me no one knows what is going to happen.

What is Inflation and will home loans rise with it?

I tend to subscribe to the same school of thought as Fannie Mae and Freddie Mac. I think in Q1 we’ll see home loans rise with inflationary pressures. I think in Q2 when the Fed starts their rate hikes, we’ll see home loan rates fall back down a bit and Q3/Q4 will be up to how Wall Street reacts to the overall economy, jobs data, and the Fed policies.

If the average 30 Year Fixed rate is at 3.5% or lower at the end of March, I will feel pretty good about the remainder of the year. To give some perspective we’re currently seeing the average mortgage rate hovering between 3.0% to 3.25%.

As the last 2 years have taught us all, anything is possible, and we’ll continue to keep everyone up to date with what we are seeing and advise our clients on the best course of action for their situation.

We’re continuing to have a rate lock bias where if you find the right home at the right price or can refinance and save money then there doesn’t appear to be a better time than now. We’re always happy to have a confidential conversation regarding your specific situation and feel free to forward our information to your family and friends.

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