5 Economists And Real Estate Pros Share What Will Happen To Mortgage Rates In 2022s

Some experts predict that mortgage rates will finish up at 4.5%

According to recent estimates from Fannie Mae, the National Association of Realtors, the Mortgage Brokers Association, and others, 30-year mortgage rates will certainly rise during 2022, though the exact rate is anyone's guess. Experts, on the other hand, have their theories.

"The Fed may continue to raise long-term interest rates by selling off its massive holdings of mortgage bonds. Mortgage rates will fluctuate in 2022, and I wouldn't be shocked if they close the year at 4.5% or higher," explains Holden Lewis, NerdWallet's home and mortgage expert. According to Greg McBride, chief financial analyst at Bankrate.com, if inflation keeps increasing and the Federal Reserve stays behind the inflation curve, rates might reach 4.5% as well. However, McBride believes that "if the Fed is proactive in increasing short-term rates to control inflation, this would be excellent for mortgage rates."

"Now the issue is whether the central bank can control inflation and how many rate rises we'll see this year, with some experts predicting the Fed will call for five to seven raises this year," explains Bill Dallas, president of Finance of America Mortgage.

Others are predicting lower rates: Fannie Mae recently said that the 30-year fixed mortgage rate is "now forecast to conclude the year at 3.7%." According to Lawrence Yun, chief economist of the National Association of Realtors, higher mortgage rates are likely, with the NAR forecasting rates of 3.7% in January.

What role does the Fed play in this process?

"The Federal Reserve, the world's biggest single investor in mortgage-backed securities (MBS), is decreasing its acquisitions and aims to end them entirely by early March. Subsequently, although without giving supporting information, the central bank has signaled that it would not reinvest the profits of aging MBS into new MBS," says Doug Duncan, chief economist at Fannie Mae. "Rather, it intends to reinvest those proceeds in the buying of Treasury securities."

This implies that private investors would likely have to fill the position of the Fed as buyers of MBS, which would need an increase in the MBS yield as an incentive for them to do so, according to Duncan. "This increased expense would be passed on to consumers via the mortgage rate," Duncan adds.

According to Paul Thomas, Zillows' vice president of capital markets for mortgages, "investors are expecting strong Fed moves to control inflation, sending rates up." Furthermore, markets will be focusing on Fed announcements in the following weeks, as well as any changes with the war in Ukraine, all of which might trigger significant rate changes, according to Thomas. The Federal Reserve's next session is planned for the 15th and 16th of March.

What does all of this imply for homebuyers?

Don't worry about possibly increasing interest rates, advise experts, while it's always ideal to obtain the lowest rate possible. "In comparison to the 1980s, when interest rates were in the double digits, a 4% interest rate makes borrowing comparatively inexpensive," Dallas adds. According to Lewis, the combination of increasing loan rates and rising home prices will drive some would-be homebuyers out of the market, resulting in less competition when the summer purchasing season is finished. So, if you want to dodge a multiple offer scenario that ends in an overpriced sale, you may want to hold off on buying a house. However, if you locate a home you like right now, there is no better moment than the present.