What will make mortgage rates soar in 2022? (Podcast)

Mortgage rates are creeping up

Mortgage rates hovered near historic lows this year. It was good news for homeowners, many of whom were able to get refinance to cut their mortgage payments or tap home equity.

Low interest rates have also been a boon for buyers, helping many to cope with skyrocketing market prices.

But as the year went on, interest rates began to rise. Now they’re averaging over 3.10%, down from their low of 2.65% this year.

What is driving interest rates up? And will the trend continue in 2022? We spoke to loan officer and mortgage expert Arjun Dhingra to find out.

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Hear Arjun on The Mortgage Reports Podcast!

What is driving today’s mortgage rates?

To understand where mortgage rates could go, it is important to first understand the mechanics behind it – which causes rates to rise or fall over time.

As Dhingra puts it, “Nobody has a crystal ball, that’s for sure. All we can do is follow data trends to understand what is driving mortgage rates. “

Much of these drivers have to do with the investment market – particularly mortgage-backed securities and bonds.

MBS and mortgage rates

Put simply, mortgage-backed securities are pools of mortgage loans that are bundled and then sold to investors. When these are in high demand, MBS prices go up, lenders lower their rates, and mortgages generally become more affordable.

This often happens during economic downturns as MBS are considered a safe investment.

MBS were therefore an important factor in the record-low interest rates in 2020 and early 2021.

Bonds and mortgage rates

The same is true of the bond market – and we’ve seen that quite a lot lately.

“Last year, Covid hit the US economy, shocked it, and the stock market took a little nosedive,” says Dhingra.

“Investors pull that money out and then look for a safer place to put it – somewhere that isn’t as volatile. Bonds are a place that is normally allotted for such funds. So investors will put their money there, and this will ultimately depress mortgage rates because the bond prices will rise. “

Inflation and mortgage rates

Inflation can also affect mortgage rates. Historically, the two are directly correlated; when inflation rises, so does interest.

This has started in the last few months as the economy recovered from the pandemic. Given the record spike in inflation (9.6% in November yoy), it appears that mortgage rates and other long-term bond yields will rise as well.

“The slight spike in interest rates over the last quarter or so here in 2021 was tied in lockstep with inflation levels across the US economy,” Dhingra said. “It’s safe to say that inflation will be there for the foreseeable future until 2022 and maybe even 2023.”

What does this mean for interest rates in 2022?

Like most real estate and financial experts, Dinghra assumes that interest rates will continue to rise in 2022. There are a few main reasons for this:

  1. The Federal Reserve has announced that it will suspend its mortgage-backed portfolio investments by spring 2022, which should result in higher interest rates
  2. If inflation continues to rise and the stock market remains volatile (as it did in the days following the recent Omicron headlines), it could lead to a spike in interest rates too
  3. If the Fed finally decides to hike rates earlier and higher than expected, it could drive mortgage rates north

As Dhingra puts it, “It’s fair to say that mortgage rates will go a little higher for the next year.”

What will the mortgage rates be? Nobody can say for sure. But many expert mortgage rate forecasts predict 30-year fixed rates in the high to 3% or low to 4% range by the end of next year.

What higher prices mean for you

Fortunately, mortgage rates shouldn’t get out of hand in 2022 – at least in historical terms.

“Are [rates] suddenly get to a point where they will affect housing affordability or soar to uncontrollable levels? I don’t think so, ”he says. “As long as wages and salaries continue to rise, it will wash out every blow we’d take from an affordability perspective.”

Remember: economic conditions are always changing so these are only forecasts. Contact a mortgage advisor in your area for the latest terms and conditions and prices in your local market.

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The information contained on The Mortgage Reports website is for informational purposes only and is not intended to be an advertisement for the products offered by Full Beaker. The views and opinions expressed here are those of the author and do not reflect the policies or position of Full Beaker, its officers, parents or affiliates.

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