Mortgage rate forecasts for January 2022

The page for another calendar year has turned and now is the time of year when we traditionally make resolutions to get in shape, eat healthier, or spend more time with friends and family.

One more thing to add to your list: stop delaying and refinance your mortgage. This is because rates are expected to rise from their all-time lows over the coming month and beyond. Where will the rates on the 30-year fixed-rate benchmark mortgage and its 15-year cousin land in January? Our experts intervene below.

Time goes down as mortgage rates rise

It was a whirlwind end to 2021, from pandemic to finance. Last month, the Fed suggested that several rate hikes were slated for 2022 to fight rising inflation. He signaled that starting this month, he would reduce his monthly purchases of Treasury securities and monthly mortgage-backed securities by $ 20 billion and $ 10 billion, respectively.

Coronavirus numbers continued to climb alarmingly amid reports of the spread of the omicron variant and lower than expected vaccination booster rates. And the Biden administration’s Build Back Better legislation suffered a potentially fatal setback.

All of these factors, and more, suggest a higher rate climate at the start of 2022.

“High inflation and the Fed’s gradual acceleration will push mortgage rates up in January. I expect the 30-year fixed mortgage rate to average 3.2% and the 15-year fixed mortgage rate to average 2.5% this month, ”said Nadia Evangelou, Senior Economist and director of forecasting for the National Association of Realtors.

Inflation recently hit its highest level since 1982, and history shows that rising inflation pushes up the 10-year Treasury yield.

“Higher inflation erodes the return an investor on a bond or loan holds over time, and bonds are no longer attractive to investors. This, in turn, lowers the value of bonds and increases yields, ”Evangelou said. “As a result, mortgage rates go up because they are tied to the yield on the 10-year Treasury.”

Additionally, the Fed reducing its purchases of bonds and mortgage-backed securities means that consumer mortgages currently sold to Fannie Mae and Freddie Mac will have to find other buyers – a strategy that will also contribute to a rise. mortgage rates.

Greg McBride, chief financial analyst at Bankrate, does not foresee any significant changes in mortgage rates. “With inflation high, mortgage rates could drift a bit higher in January,” says McBride, adding that he expects 30-year and 15-year rates to climb to 3.5% and 2.7%, respectively, on average this month.

Rick Sharga, executive vice president of RealtyTrac, on the other hand, doesn’t think mortgage rates will rise much more than their average in December.

“This is because market conditions are not expected to change significantly over the next 30 days. Thus, the rates for the 30-year fixed-rate loan will probably be around 3.1%, compared to 2.3% for the 15-year fixed-rate loan, ”explains Sharga.

First Quarter Mortgage Rate Forecast

Fannie Mae expects the 30-year benchmark fixed rate to be between 3.1% and 3.2% in the first quarter of 2022, while the Mortgage Bankers Association expects 3.3% to 4% and Freddie Mac between 3.4% and 3.5%.

“An upward trend in rates will likely continue for much of the first quarter of 2022, with a 30-year average rate between 3.25% and 3.5% and 15-year rates in the neighborhood of 2 , 5% to 2.8%, ”McBride said. “If there is a significant improvement in the supply chain and expectations of lower inflation, however, this could limit mortgage rates. But a wild card is the growing number of COVID cases. “

Evangelou expects the 30-year rate to average 3.3% versus 2.6% for the 15-year rate in the first three months of the year. “Mortgage rates will rise in the first quarter as the Fed will likely end its purchases of mortgage-backed securities by March. This means that the current economic stimulus policies will soon come to an end. In addition to doubling the pace of its decline, three rate hikes will follow later in 2022, likely starting in the middle of the year. “

Sharga envisions an average rate of 3.25% over 30 years by the middle of the year, reaching 3.5% by the end of the year. “A number of factors suggest rate hikes, including higher inflation and the Federal Reserve’s plans to accelerate the cut while increasing the federal funds rate two or three times over the coming year. While there is no direct correlation between the Fed Funds rate and mortgage rates, these Fed actions tend to set the tone for the overall credit environment. “

Nonetheless, global events – especially those influenced by the pandemic – could cause international investors to flight to the relative safety of U.S. Treasuries, driving down yields and preventing mortgage rates from rising.

“And if rising mortgage rates lead to lower home purchases, lenders could try to keep rates lower in order to boost lending volume,” Sharga said. “I still think it’s more likely that we will see a modest increase in mortgage rates during 2022, but as we’ve seen in recent years anything can happen.”

New year, new opportunities

The moral of the story? Lock in a low rate on a purchase or refi loan now if you feel financially secure.

“If you think you are financially prepared to own a home, you should probably move out ASAP. Home prices have risen 18-20% over the past year and are expected to continue rising in 2022, albeit at a slower pace, ”Sharga said. “Combined with even a modest hike in interest rates, this can make it difficult for buyers – especially first-time buyers – to be able to afford a home.”

Evangelou subscribes to this theory. “I see no reason not to buy or refinance at this time. Mortgage rates will continue to rise, ”she said.

However, don’t feel like you have to do something prematurely.

“If you find yourself reaching the limit of what you can afford, put up an offer without being seen or after only five minutes of visiting, or if you are forced to forgo a home inspection, you’d better to go away, ”says McBride. “There are worse things than staying where you are or renting for a year or two until you can buy in a more balanced and healthy market where you can do the necessary due diligence.”

Also zoom out from micro view to macro view for necessary context.

“Mortgage rates have reached or are approaching their historic lows in recent years. And even with a modest increase over the coming year, these rates will continue to be good deals, ”adds Sharga. “Borrowers should keep in mind that interest rates between 3 and 3.5% are also lower than the current inflation rate of 5.5%, which in itself is a powerful argument for buying a home. or get refinancing if you can afford it. “

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