Mortgage Rate Forecast For January 2022

The page on another calendar year has turned, and now is the time of year 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 stalling and refinance your mortgage. That’s because rates are anticipated to go higher from their near-record lows in the coming month and beyond. Where will rates for the benchmark 30-year fixed-rate mortgage and its 15-year cousin land in January? Our experts chime in below.

Temps drop while mortgage rates rise

It was a whirlwind end to 2021, from the pandemic to finances. Last month, the Fed suggested multiple rate hikes were coming in 2022 to fight rising inflation. It signaled that, beginning this month, it will trim its monthly buys of Treasury securities and monthly mortgage-backed securities by $20 billion and $10 billion, respectively.

Coronavirus numbers continued their alarming climb amid concerning reports about the omicron variant spreading and vaccination booster rates lower than expected. And the Biden Administration’s Build Back Better legislation was dealt a possibly fatal setback.

All of these factors, and others, point to a higher rate climate in early 2022.

“Elevated inflation and the Fed’s taper acceleration will move up mortgage rates in January. I expect the 30-year fixed mortgage rate to average 3.2 percent and the 15-year fixed mortgage rate to average 2.5 percent this month,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors.

Inflation recently rose to its highest level since 1982 and history demonstrates that rising inflation causes the 10-year Treasury yield to drift up.

“Higher inflation erodes the return that the investor of a bond or loan is holding over time, and bonds are not any more attractive to investors. This, in turn, makes bond values go down and yields rise,” Evangelou says. “Consequently, mortgage rates move upward, as they are tied to the 10-year Treasury yield.”

What’s more, the Fed cutting back its buying of bonds and mortgage-backed securities means that consumer mortgages currently sold to Fannie Mae and Freddie Mac will need to find other buyers – a strategy that will also contribute to higher mortgage rates.

Greg McBride, chief financial analyst for Bankrate, envisions no large moves in mortgage rates. “With inflation elevated, mortgage rates may drift a bit higher in January,” says McBride, adding that he expects 30-year rates and 15-year rates to creep up to 3.5 percent and 2.7 percent, respectively, on average this month.

Rick Sharga, executive vice president for RealtyTrac, on the other hand, doesn’t believe mortgage rates will rise much higher than they’ve averaged in December.

“That’s because market conditions shouldn’t vary significantly over the next 30 days. So rates for the 30-year fixed-rate loan will probably be around 3.1 percent, versus 2.3 percent for the 15-year fixed-rate loan,” Sharga says.

First-quarter mortgage rate forecast

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

“An uptrend in rates will likely carry through much of the first quarter of 2022, with the average 30-year rate between 3.25 percent and 3.5 percent and 15-year rates in the 2.5 percent to 2.8 percent neighborhood,” McBride says. “If there is meaningful improvement in the supply chain and expectations that inflation will recede, this could keep a lid on mortgage rates, however. But one wildcard is the rising number of COVID cases.”

Evangelou expects the 30-year rate to average 3.3 percent compared to 2.6 percent for the 15-year rate in the first three months of the year. “Mortgage rates will move up in the first quarter as the Fed will likely end its purchasing of mortgage-backed securities by March. That means that the current economic stimulus policies will end sometime soon. In addition to doubling the pace of its tapering, three rate hikes will follow later in 2022, starting likely in mid-year.”

Sharga envisions a 3.25 percent average 30-year rate by mid-year, climbing up to 3.5 percent by year’s end. “There are a number of factors that suggest rate increases, including higher inflation and the Federal Reserve’s plans to accelerate tapering while also raising the Fed Funds rate two or three times in 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 lending environment.”

Nevertheless, world events – particularly those influenced by the pandemic – could result in a flight to the relative safety of US Treasuries by international investors, driving yields down and keeping mortgage rates from going up.

“And if rising mortgage rates cause a downturn in home buying, lenders might try to keep rates lower in order to stimulate loan volume,” Sharga says. “I still think it’s more likely that we’ll see a modest increase in mortgage rates over the course of 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 now on a purchase or refi loan if you feel financially secure.

“If you believe you are financially ready for homeownership, you should probably move as quickly as possible. Home prices have gone up 18 percent to 20 percent over the past year and are likely to continue to rise in 2022 – although at a slower pace,” Sharga says. “Combined with even a modest rise in interest rates, this can make it difficult for buyers – especially first-time purchasers – to be able to afford a home.”

Evangelou subscribes to that theory. “I don’t see any reason to hold off from purchasing or refinancing right now. Mortgage rates will continue to move upward,” she says.

Still, don’t feel pressured to make a move prematurely.

“If you find yourself reaching the very limit of what you can afford, putting an offer in sight unseen or after only a five-minute walkthrough, or being pressured to forgo a home inspection, you’re better off just walking away,” says McBride. “There are worse things than staying where you are or renting for another year or two until you can buy in a more balanced and sane market where you can do the necessary due diligence.”

Zoom out from micro to macro view for necessary context, too.

“Mortgage rates have been at or near historic lows for the past few years. And even with a modest increase in the coming year, these rates will continue to be bargains,” Sharga adds. “Borrowers should keep in mind that interest rates in the 3 percent to 3.5 percent range are also below today’s 5.5 percent rate of inflation, which is a powerful argument itself for purchasing a home or taking out a refinance loan if you can afford it.”

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