Predictions for 2022 Mortgage Rates Are Already Wrong

In 2021, the 30-year fixed mortgage rate dropped to 2.65%, the lowest average ever recorded. At the same time, inflation spiked to a 39-year high. Now, the one thing on everyone’s mind is where do mortgage rates go from here? Apparently, not where some industry insiders thought it would. 

Toward the end of last year and as recently as last month, experts predicted that the average 30-year fixed rate would gradually rise to around 4% in the later part of 2022. But the rate suddenly leapt from 3.69% on Feb. 10 to 3.92% on Feb. 17. That’s the highest average since May 2019. Then it kept going. As of Feb. 21, that rate already hit 4.18%. 

Will it continue to rise? At this point, it’s anyone’s guess, especially with just over ten months still to go in the year. Joel Kan, associate vice president of economic and industry forecasting, at the Mortgage Bankers Association said rates could head even higher if conditions stay in the current state. Yet he believes they could also drop pretty quickly if some other unexpected economic news occurs.

Logan Mohtashami, a housing data analyst at HousingWire, feels it may eventually go lower too. He said the bond market is the key to where mortgage rates will move. Mohtashami feels bond rates will stay within the same range as 2021. As a result, mortgage rates could go as low as 2.375% to 2.5%. 

Where mortgage rates go will depend on the same factors that affected them in 2020 and 2021: inflation, the pandemic, and Federal actions. 

Inflation and the Economy 

Inflation will continue to be the main cause of higher mortgage rates, according to experts. The Bureau of Labor Statistics reported on February 10 that inflation was 7.5% year-over-year in January, the highest since 1982. Yet, that number is still historically low. For now. If that rate continues to rise, mortgage rates could also keep climbing. 

Freddie Mac forecasts that even though the U.S. economy was solid at the end of 2021, growth will be slower this year due to the continuing health crisis. But, Len Kiefer, deputy chief economist at Freddie Mac, says he feels mortgage rates will ultimately remain relatively low. 

The Pandemic 

When the U.S. was first locked down when the pandemic hit, mortgage rates plummeted. New, more powerful COVID-19 variants are expected to threaten public and economic stability in the future. Yet, Housingwire’s Logan Mohtashami believes it won’t affect mortgage rates as severely as before because the industry and the world have learned to adapt quickly and function more efficiently. 

Daryl Fairweather, chief economist at Redfin, pointed out that the U.S. economy’s ability to recover faster than other countries has created a strong demand for mortgage-backed securities coming from international investors. This demand helps push rates lower, so the impact of COVID-19 on economies around the world may help mortgage rates in the States.

Federal Actions 

On Jan. 26, the Federal Reserve indicated it might raise its interest rate throughout the year in response to higher inflation and a strong employment market. According to US News, an increase doesn’t normally affect mortgage rates directly, but the rate on 10-year Treasury may. As inflation rises, yields on Treasury bonds offer much lower returns, so more investors sell them off quickly. This, in turn, causes Treasury bonds to pay higher rates, which means yields will rise. That could result in either higher or even lower mortgage rates. 

Media outlet Kiplinger said that while the Fed doesn’t directly control mortgage rates, they do set short-term rates, which have a habit of influencing longer-term rates. They predict the Treasury 10-year yield will reach as high as 2.3% by December, which will also increase 30-year fixed-rate mortgages.

Rising Rates Still Favorable for Home Buyers

Where mortgage rates end up this year is a mystery. As the past two years have taught us, it’s hard to predict where the ship is heading if you have no idea where the current will flow. But, even though the average mortgage rate hit a high mark much, much faster than people expected, borrowers are still looking at favorable interest rates. Plus, there’s always a chance they could level out or even slide backward by end of the year. 

Yet, no matter how rates — or the market in general — fluctuates, the Selene family of companies is here to help you. Trust us to navigate the way with expert, insightful advice and solutions.