Will rising mortgage rates slow the real estate market in 2022?

Will rising mortgage rates lead to a slowdown in the real estate market in 2022, after months of overheating? Some forecasters seem to think so. Mortgage rates have just reached their highest level since 2020.

Over the past few months, some economists and analysts have predicted that mortgage interest rates will rise in 2022. Now, as we approach the end of January, we are seeing clear signs of upward movement.

The average rate for a 30-year fixed-rate mortgage just crossed the 3.5% threshold for the first time in almost two years. The question is how will this trend affect the housing market in 2022? According to a forecaster, rising mortgage rates could lead to a slowdown in the US housing market in 2022.

Mortgage rates rise in early 2022

On January 20, researchers at Freddie Mac announced that the average rate for a 30-year fixed mortgage had risen to 3.56%. This number is important for several reasons:

  • It marked four consecutive weeks of rate increases.
  • It was 50 basis points (0.50%) higher than the previous month.
  • It was the highest average since March 2020.

The chart below shows the average rate for a 30-year fixed rate mortgage over the past year or so. This chart was released with the January 20 Freddie Mac report mentioned above.

Chart: 30-Year Average Mortgage Rates | Source: Freddie MacPMMS

The right side of the chart shows rate trends over the past few weeks. You can see the sharp rise since mid-December last year. You will also notice that 30-year mortgage rates are currently hovering at their highest level in 12 months.

If we zoomed out on this graph to show the past Three years, you would see that 30-year mortgage rates have not exceeded 3.5% since March 19, 2020. This means that they have just reached the highest level in almost two years.

The general consensus among forecasters is that rates will continue to climb in 2022. For example, a January 21 forecast from the Mortgage Bankers Association predicted that the 30-year average mortgage rates could reach 4% by the end of this year. year.

Admittedly, today’s rates are still quite low from a historical perspective. (They were around 8% in 2000, and above 10% in the 90s). Even so, the current upward trend in mortgage rates could be enough to slow the real estate market in 2022, especially if they continue to climb over the next few weeks.

A slower housing market ahead?

The U.S. real estate market moved at lightning speed in the second half of 2020 and throughout 2021. Now, as we approach the last week of January 2022, we are seeing signs of a cooling trend.

According to data released by the National Association of Realtors (NAR) last week, existing home sales fell 4.6% in December 2021 from the previous month. Sales also declined when measured year over year.

To quote the NAR report of January 20:

“Existing home sales fell in December, setting off a three-month streak of gains…Each of the four major U.S. regions saw sales fall in December month-over-month and year-over-year other. “

Sam Khater, Freddie Mac’s chief economist, believes housing demand could fall further as mortgage rates continue to climb. “[W]We expect some moderation in housing demand,” Khater said in a recent statement.

Still lots of competition among homebuyers

But home buyers shouldn’t be asleep too much a lot by all this talk of “moderation”. Even if the real estate market slows down a bit in 2022 – due to rising mortgage rates and/or other factors – it will still remain very competitive. This is due to an ongoing shortage of housing market inventory nationwide.

As Freddie Mac’s Sam Khater explained, “a shortage of entry-level inventory of homes for sale should keep the housing market competitive.”

It seems that the fiercest competition will occur at the lower end of the price spectrum, for the so-called “starting houses”. As we wrote in a previous report, first-time buyers looking for a smaller, cheaper home might be surprised by the lack of inventory in 2022.

But real estate market conditions can vary by location. Some local housing markets have more demand and less inventory, and are therefore very competitive. Other cities have a better balance, which makes it easier to find accommodation.

Overall, however, 2022 should be another competitive year for the US housing market, even if rising mortgage rates are slowing things down a bit.

Disclaimer: This article includes predictions made by third parties not associated with the publisher. The Home Buying Institute makes no claims about future trends in the mortgage industry or the real estate market.

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