Climbing Mortgage Charges Pressure Shopping for Energy in 2022 — RISMedia


Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators of economic health and provides expert insights into developments in 2022.

Homeowners will likely look to the past year of mortgage rate developments with fondness, or even regret, as the days of historic lows pass.

Based on recent Freddie Mac reports, 30-year fixed-rate mortgages (FRM) break 3.14% from month-long lows of under 3% that made headlines in 2021. Economists and real estate experts agree that the recent rate hikes are an inevitable trend that is likely to last well into next year as the housing market approaches its post-pandemic equilibrium.

“We expect a bit of a gradual increase for the rest of the year and through 2022,” said Joel Kan, chief economist at the Mortgage Bankers Association (MBA), which expects rates to rise gradually to nearly 4% by the end of next year.

While this is the highest prediction compared to other reports, it’s not far from the consensus that rates will fall somewhere between the mid to upper three percentiles by the end of next year.

Kan largely attributes this forecast to the relatively strong economic recovery the country has seen since the COVID-19 outbreak in March 2020.

Another factor adding upward pressure on mortgage rates comes from the Fed and its plans to counter higher inflation by curbing bond purchases, according to experts from the National Association of REALTORS® (NAR).

“The Federal Reserve is getting nervous about rising and persistently high inflation rates,” said Lawrence Yun, chief economist at NAR. “So the Fed will curb mortgage-backed securities purchases later this year and raise short-term interest rates in 2022.”

Market impact

The impact of higher mortgage rates has been widely discussed among real estate professionals and stakeholders who have raised concerns that higher rates would disrupt market activity.

Yun admits that higher interest rates will modestly reduce home sales, but he doesn’t think it will be drastic. His colleagues shared similar views, but also suggest that higher rates will play a bigger role in persistent affordability challenges.

“Usually we say that a rate hike, at least if it’s not too strong, doesn’t affect demand quite as much because when someone wants to buy a house, interest rates and mortgage rates are part of the equation,” Kan says, pointing to the appreciation house prices at record levels as another factor weighing on buyers.

With mortgage rates rising, Kan also suggests that refinancing activity is likely to suffer a significant slump, falling more than 60% in 2022.

“We’ve been in this low interest rate environment for the past year and a half and we’ve seen a lot of refinancing,” he says, noting that 2020 was a stellar year for record-low mortgage loans and refinancing that continued well into 2021.

Matthew Gardner, chief economist at Seattle-based Windermere Real Estate, says higher rates may also deter some potential buyers who have become accustomed to the “artificially low mortgage rates” of the past year and a half.

“One of the biggest things about the rate hike is that it will certainly counteract home price growth,” Gardner says.

He explains that for every 1% increase in interest rates, consumer purchasing power decreases by about 10%.

However, despite the rate hike, Gardner sees no cause for concern in the market, which he believes will remain competitive with a persistent supply-demand gap as mortgage rates are still relatively low compared to previous years.

Historically, the long-term average mortgage rate since the introduction of the 30-year FRM has been around 7.5%, according to Gardner, with the last high of 4.87% being reached in November 2018.

“It’s still remarkably low when you look at it big,” says Gardner.

Buyer behavior

Given the projections for mortgage rate hikes in 2022, real estate agents and leaders have mixed feelings about how buyers are likely to react to the cooling market with added affordability to the burden.

In Austin, Texas, Buddy Shilling, president of the Austin Divisions of JBGoodwin REALTORS®, says increasing rates of his activity in the coveted area, which is seeing an increase in major employers in the Texas city, is unlikely to hurt.

“If the rate goes up, Austin will be in a good position because many of the new jobs created in the city are paid more,” says Shilling, adding that an abundance of developable land and affordable housing will continue to make Texas a city sought-after destination for buyers.

“Even if interest rates rise, cheaper, affordable housing will be available in minutes,” added Shilling.

Lynn Chute, vice president of HomeSmart Realty’s Denver, Colorado office, expects rising interest rates in her market to create some reluctance from buyers. However, she says that the buying break will be short-lived as there are still relatively low interest rates up for grabs.

“Buyers need to make some adjustments, but the ultimate home goal is still within their grasp,” says Chute. “With the drastic increase in rental prices, the advantages of owning a home still outweigh the rental costs, even with a small price increase. Buying a home is still one of the best long-term investments you can make. “

A similar point was raised recently in a CNN interview and virtual panel discussion where real estate leaders presented their market forecasts.

The interview was performed by Barbara Corcoran, founder of Corcoran Real Estate. The next panelists were Glenn Kelman, CEO of Redfin; David Doctorow, CEO of®; and Ryan Williams, Founder and CEO of Cadre.

Corcoran noted during her interview that rising mortgage rates would contribute to affordability issues that are already weighing on the market and driving out buyers.

“If you calculate what you are paying for your monthly expenses on a home with a 1% increase in mortgage rates, that is significant,” she said, noting that aspiring buyers waiting to get to the market are at risk of being left behind will when the total cost of living increases.

When asked if she thought rising interest rates would scare off people who are used to low interest rates, Corcoran said, “I don’t think there is any reason to panic.”

“I don’t think any financial expert is predicting interest rates will rise,” she said, while also commenting on the Fed’s plan to gradually raise interest rates and the potential impact on mortgage rates.

“It is in everyone’s interest to keep the housing market going, so you will find that the bureaucrats will be extremely cautious about raising interest rates, but they will raise interest rates, but I don’t think the increase will be quick and angry, ”Corcoran said.

Doctorow agreed with Corcoran’s views, saying, “When consumers are thinking about affordability, it is really important to understand the two factors – home price and mortgage rates – together and, ultimately, try to put yourself in the position of the most home owner to get you to know that interest rates can rise over time, “added Doctorow.

Jordan Grice is RISMedia’s online associate editor. Email him your property news at [email protected]