A year ago, mortgage rates reached the latest record low in their history. In the first week of 2021, the 30-year fixed mortgage rate was 2.65%. Since then, despite the effects of the Delta and Omicron variants, the job market added more than 6 million jobs, the economy is expanding, and the housing market continues to outperform. As a result, in the first week of 2022, the 30-year fixed mortgage rate jumped to 3.22%, nearly 60 basis points higher than a year earlier.
The bond market is signaling that rates will rise even further. The Fed has already started cutting back on bond purchases and mortgage-backed securities, ending them by March. Moreover, three quarter-percentage-point interest rate hikes will follow in 2022. NAR forecasts mortgage rates to reach 3.7% at the end of the year.
However, housing demand is expected to remain robust this year. Even though the housing market will likely settle down, it will still outperform compared to pre-pandemic. Despite supply and affordability challenges, the last year showed us that life-cycle events play an important role in people’s decision to purchase a home. For instance, marriage often coincides with a household’s decision to expand housing and obtain homeownership. 2021 was a record year for purchase originations and the best year for the housing market since 2006. In the meantime, 4.7 million millennials – the largest cohort of homebuyers – will be at the typical age that millennials get married in 2022. NAR forecasts 5.9 million homes to be sold this year. This is still a 10% increase compared to 2019.