Real Estate and Mortgage Predictions for 2022

Real Estate and Mortgage Predictions for 2022

Wednesday, Feb 23, 2022

No one has a crystal ball that can tell you exactly how the real estate market or average mortgage rates will change in 2022. But what we do have is solid historical data from 2021, powerful analytical models, and insights from respected industry economists to guide us in our forecasts.

With that said, here is First Savings Bank Mortgage’s predictions for how the housing market will evolve in the year ahead:

Home prices will continue to rise, but at a much slower pace.

The shock of the pandemic led to a mad scramble. Millions of urbanites left major cities in search of a home away from the crowds, and millions of renters decided it was time to lay down roots and finally purchase a permanent sanctuary.

Those events led to a frenzy of home buying, a sudden spike in demand, and an equally drastic drop in inventory. Buyers were putting down offers on homes sight unseen without an inspection. Sellers found themselves with unprecedented leverage in negotiations. Bidding wars led to properties selling over asking price became a common occurrence.

That trend held steady through the first months of the pandemic in 2020 and well into 2021. Only just recently have there been signs that the demand is starting to taper slightly. In 2021, housing prices shot up an eye-watering 20%, but the National Association of Realtors (NAR) estimates that in 2022 that rate of increase will cool to 5.7% and thinks it will be even lower at 2.9%.

Furthermore, certain regions and cities in the country saw outsized growth in demand in 2021, such as Austin, Texas; Huntsville, Alabama; Knoxville, Tennessee; Tucson, Arizona; Naples, Florida; and Boise, Idaho. Experts predict the expansion of these newly hot real estate markets (and their housing prices) are still on track to outperform the nation as a whole in 2022.

Historically low mortgage rates will rise slightly.

Borrowers have been benefiting from incredibly attractive mortgage rates for some time now. 30-year mortgages as low as 3% can still be found, as can 15-year rates at 2%. However, the days may be running out for deals like those.

With the Federal Reserve signaling it intends to raise the federal funds rate, a bellwether for interest rates broadly, three times in 2022 to fight rising inflation, Dr. Lawrence Yun, the chief NAR economist, predicts that the average 30-year fixed mortgage rate will rise to 3.5% by the end of 2022. expects that rate to hit 3.3% early in 2022 and peak at 3.6% by the end of the year.

Housing supply and new construction won’t catch up to demand until the second half of 2022 — if they do at all.

Despite the swings in the economy and the uncertainty that the pandemic still imposes on markets of all types, the labor market has remained strong with unemployment claims at the lowest level in decades. Additionally, the stock market, though rocked by frequent volatility, is still not far from its all time high. Hence, buying power is still there for many individuals interested in buying a home.

Furthermore, the international supply chain disruptions that developed in 2020 and worsened in 2021 are still ongoing. Logistics experts don’t expect things to improve until at least Q3 2022 (and that assumes no new major disruptions occur). That means supply for building materials will not reach parity with demand in the near term and the pace of homebuilding will remain sluggish.

Key Takeaways

  • The red hot housing market will cool slightly but remain extremely active, and sellers will retain their edge over buyers.
  • Mortgage rates will almost certainly see a small increase, but likely not enough to scare off most borrowers.
  • Housing inventory will remain below demand for at least the first half of 2022.

FSB Mortgage is a nationwide, bank-backed lender offering a broad range of loan products to retail customers. Get in touch today to learn about our flexible lending products, fast turn times, and exceptional customer support.