As We Enter a New Year, Realtors Should Urge Prospective Homebuyers To Act Now.
2022 Ushers in Steadily Increasing Mortgage Rates As Housing Supply Shortage Persists
Published JANUARY 25, 2022 | 12:25 pm
The era of record-low mortgage rates has come to an end. That’s the consensus of economists and housing market experts as we bid adieu to 2021. And while interest rates are predicted to steadily rise over the coming months, homebuyers should not expect a reprieve in the form of declining home prices.
An economy settling into the new normal of the pandemic, a continuation of the decades-long housing shortage, and increasing demand for entry-level and luxury homes alike are all factors that will continue to drive up both mortgage rates and home prices through the new year.
Given the anticipated landscape of the housing market in 2022, potential homebuyers would be wise to make their new home purchase sooner rather than later in order to avoid paying upwards of hundreds of dollars a month more on a mortgage.
For realtors, knowing where the market is heading can prove invaluable in the ability to advise clients on when to buy and when to sell. Likewise, understanding the motivation driving buyers’ home selection process can allow realtors to better support their search in order to put homebuyers in the right home now, while prices and rates are at the lowest we are likely to see this year.
Here’s a look at projected mortgage rates, the state of the housing market, and what’s motivating homebuyers in 2022.
Mortgage Interest Rates
Despite surges in COVID-19 cases nationwide, due largely to the highly contagious Omicron variant, interest rates across the board continue to rise—an upward trend that is expected to continue throughout the new year.
While the early days of the pandemic were marked by record-low interest rates, the uncertainty that compelled the Federal Reserve (the Fed) to keep rates low is waning. Now, two years into the pandemic, our nation, and our economy have adjusted to life as we now know it. As such, the Fed has indicated its intentions to end its purchasing of mortgage-backed securities (MBS) by March of this year. This tapering of bond purchases is already underway and is paving the path for the three interest rate hikes the Fed plans to make in 2022.
The effects of these changes by the Fed are already trickling down to mortgage interest rates. Since December 23, 2021, rates have steadily increased week after week from 3.05% for a 30-year fixed-rate mortgage to 3.56% on January 20, 2022, according to Freddie Mac’s Primary Mortgage Market Survey®.
Mortgage rates are predicted to continue to increase, and homebuyers should expect rates to remain between 3 and 4% for a 30-year fixed-rate mortgage through year’s end, with rates below the 3% mark firmly in the rearview.
Housing Supply and Demand
Housing supply shortages are expected to remain an issue in the new year, perpetuating the sellers’ market of years past.
In 2020 and 2021, pandemic-driven stay-at-home orders had the walls closing in on many of us, and demand for houses at all price points surged. And while this caused home prices in general to skyrocket, the market for entry-level homes was the most tightly squeezed. This is thanks in large part to a now decades-long housing supply shortage coupled with the large number of millennials aging into their prime homebuying years.
2021 saw record highs in-home price growth, spiking to 24% in May. And while rising interest rates may slow home price growth by decreasing demand slightly, upward trends are expected to continue. Once again, first-time homebuyers will likely be the group most affected by supply shortages and high home prices. So, when these buyers do find a home in their price range, realtors should encourage them to act quickly.
Motivating Factors for Buyers
What matters most to homebuyers is changing in 2022. The recent shift to work-from-home models for businesses nationwide is providing people with more choice and flexibility in where to live. For many potential homebuyers, this shift means a commute is no longer a primary factor when deciding on where to live, opening them up to consider new and different criteria.
Living in places where political policies align with personal values, selecting school districts where the stance on controversial issues matches their own, and regional impacts of climate change are all top motivators for buyers when selecting where to live.
Politically, buyers are considering state and local laws regarding issues such as abortion, gun control, and critical race theory. People are interested in living where the laws and the opinions of neighbors support their own views. The same is true in terms of school districts. Families want to live where the school policies uphold their own preferences, considering issues such as mask mandates and other controversies when selecting which schools will best serve their children.
Many homebuyers are also interested in data on how climate change is affecting the frequency of natural disasters and related costs in a given area. Top concerns include the risk of flooding and fires, and how these risks may impact insurance and mortgage costs.
Realtors can expect an increased interest in small towns and suburbs as commutes become less of a concern and affordability remains a top issue, especially in the entry-level home market. Staying apprised of the market in these areas, as well as remaining informed on the motivating factors for buyers will give realtors an advantage in helping homebuyers find their perfect fit. And with rates and prices on the rise, the ability to make fast informed decisions will be a tremendous advantage to your clients in 2022.