Mortgage Rates and Home Prices Will Rise in 2022
This is the time of year that economists begin in earnest forecasting and refining their early predictions for the following year. Fannie Mae economists released This Week in Real Estate their 2022 expectations of mortgage rates and home prices. Fannie Mae expects increases in both with the 30-year fixed mortgage rate to average 3.3% and home price increases of 7.4%. Economists at Goldman Sachs, one of the largest investment banking enterprises in the world, predicts home prices will increase another 16% in 2022. While that is a significant difference between the two economist groups, what can be deduced is consensus that the U.S. housing market will continue to realize strong price appreciation through next year. Below are a few newsworthy events from the second week of October that influence our business:
Fannie Mae: Mortgage Rates and Home Prices Will Rise in `22. Economists at Fannie Mae expect an increase of mortgage rates and home prices in 2022 due to higher inflation, a tightening of monetary policy, and low home inventory. Fannie Mae in its October economic forecast said it expects the 30-year fixed rate mortgage to average 3.3% in 2022, up from 3.1% the GSE projected last month. Fannie attributed the uptick in interest rates to the Federal Reserve’s expected tapering of asset purchases, including mortgage backed securities. In terms of home prices, economists at the GSE are forecasting a 16.6% increase in 2021, which is 1.8% higher than projected in September. In 2022, the economists changed the outlook on home price increases to 7.4% from 5.1%. According to the latest forecast, total home sales will decline to 6.54 million in 2022 from 6.77 million sales in 2021. Single-family mortgage origination projections for 2021 remained flat at about $4.3 trillion. Fannie Mae is now projecting single-family originations in 2022 at $3.30 trillion, up from September’s forecast of $3.25 trillion. “Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices,” said Duncan.
Mortgage Applications in U.S. Increase in Early October. According to the Mortgage Bankers Association’s latest Weekly Mortgage Applications Survey for the week ending October 8, 2021, U.S. mortgage applications increased 0.2 percent from one week earlier. The Refinance Index decreased 1 percent from the previous week and was 16 percent lower than the same week one year ago. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 10 percent lower than the same week one year ago. “Mortgage rates reached their highest level since June 2021, but application activity changed little this week. An increase in home purchase applications offset a slight decline in refinances,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The increase in purchase applications was welcome news, but was primarily driven by a 2 percent gain in conventional purchase applications, which kept the average loan size elevated.” Added Kan, “The 30-year fixed rate reached 3.18 percent last week and has risen 15 basis points over the past month, resulting in an 11 percent drop in refinance applications during this time. We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive.”
Goldman Sachs: Home Prices Will Rise Another 16% in `22. Home prices are currently up 20% year-over-year, but according to a new Goldman Sachs market forecast, they may not have reached their peak yet. Not even close. Goldman Sachs economists predict that home prices will grow another 16% by the end of 2022. The rapid increase in home prices over the past year is due to a number of colliding factors, including low interest rates, tight housing inventory, pandemic-induced migration patterns and an increase in millennials entering the home buying market. In addition, as fears of inflation increase, many investors are purchasing properties as a hard asset. “The supply-demand picture that has been the basis for our call for a multi-year boom in home prices remains intact,” wrote a Goldman Sachs team of economists led by Jan Hatzius in a recent note, according to Yahoo! News, which first reported the story. “Housing inventories remain historically tight, and surveys of home buying intentions remain at healthy levels.” Although inventory has slowly been increasing over the past few months, it is still below pre-pandemic levels, and the homebuilding industry has not been able to fill the void due to material and labor shortages. Construction employment is still 201,000 jobs below its February 2020 level, according to the U.S. Bureau of Labor Statistics.