Your Guide to 2022 Mortgage Rate Predictions

Your Guide to 2022 Mortgage Rate Predictions

Senior Loan Officer
Brian Decker
Published on January 24, 2022

Your Guide to 2022 Mortgage Rate Predictions

If you are looking for your guide to 2022 mortgage rate predictions, take a look at everything you need to know about it today.

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The mortgage rate in the United States was at historic lows during the beginning of the pandemic. Even in 2021, it got as low as 2.65%.

Some argue that this set up a good environment for homebuyers who did not have all the financial means to buy a house because they could significantly save on interest. Over 30 years is a long time, but will that continue in 2022?

Here are some mortgage predictions for the next year.

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Past Year Comparison
Let’s take a look at how the mortgage rate has looked in past years around January.

It was mentioned above that last year was around 2.65%, and in 2020, right before the pandemic started, mortgage rates were sitting at around 3.72%.

That is still low compared to the peak seen in Oct. 2018 over the last five years, where the interest rate went up to around 4.9%.

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During the first week of 2022, the average mortgage rate is sitting at around 3.22%. That is already .6% higher than around the same point last year and about halfway between the start of 2020 and the start of 2021.

This suggests that the mortgage rate may be starting to trend back upward and perhaps eventually pass where it was sitting just two years ago.

There was a brief point in the spring of 2021 where the average rate was sitting at similar levels to where it is now. However, the rate ended up going back down again until around December.

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Inflation
This is the next thing that we need to look at because this and the mortgage rate tend to go hand in hand. While they are not directly related, they still seem to play off of each other, at least in past years.

A perfect example is looking at what percentage inflation rose last year. In 2021, it was up by 6.8%. This is the highest it has been in 40 years.

So, what does that have to do with a mortgage? Take a look at the first link in the opening paragraph, which lists the average mortgage rates for the last 50 years.

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There, you will notice that the last two years have had the lowest mortgage interest rates of any period in US history during the previous half-century.

Back in 2008, the inflation rate was around 3.84%. Then, when the Housing Crisis happened, mortgage rates went down significantly in a short period of time.

The rate went from about 6.1% in October 2008 to about 5.1% by the end of the year.

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This suggests that when there is unusually high inflation, the mortgage rate tends to decrease along with it. But, if the national economy can continue heading in the right direction next year and the world opens up more, inflation should start to decrease this year from that peak.

Demand
One key piece to affecting these prices is going to be the demand for houses. It is no secret that there has been massive demand across the country since the pandemic began but can that continue?

There is still a big market of people who may be looking to buy a house. That would be the millennials because it is estimated that about 45 million millennials have reached the home-buying age.

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Combine that with a greater ability to work remotely in these times; you could possibly see even more millennials starting to lock down houses.

Of course, with millennials buying houses, they are less likely to have the money to pay upfront due to their age. Most would more than likely have to get a mortgage, and with that group potentially coming into the housing market, you could possibly see a rise in rates.

Adjusting Mortgage Rates
One key piece of information here is what the federal government is saying when predicting mortgage interest rates. It has been stated that they plan on adjusting mortgage rates at least three times in 2022 to combat inflation.

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What does this mean? It means that the rate you see now may not be the one you get in a few months from now. This is important to factor in considering the peak home-buying season tends to be in the spring and summer of a calendar year.

If some plan for that adjustment to increase it all three times, that could potentially push those people to buy a house sooner rather than later to try and get a better rate.

Cost of Labor and Lumber
Finally, with inflation comes dealing with the rising costs of labor to build new houses and the supplies that go with it.

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Let’s start with the lumber, where that market has been rapidly fluctuating since the pandemic began. The cost per thousand board feet was as high as $1,515 in May of 2021.

However, that cost went down as low as $389 a few months later, in August. Yet, it seems to be going in an upward direction again, considering it increased in cost by 135% from that in December, with it being around $915.

Getting quotes for more than twice the cost of supplies suddenly may turn some off from building more houses. That would mean that the demand would still be there, perhaps still causing inflation of everything.

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The same goes for labor if you have to pay them more than twice what you used to suddenly, so those are things to consider.

Learn More About Mortgage Rate
These are just a few factors that could play into a mortgage rate for you in 2022. If the government has to keep combatting inflation and the trend up is any indicator, the mortgage rates likely bottomed out during the last two years.

Do you need a mortgage loan? Click here to apply today

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Senior Loan Officer
Brian Decker Senior Loan Officer
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