What Conflicting Mortgage Rate Forecasts Mean for 2022 Housing Market and Beyond

Home for sale with red and white real estate sign during the fall season.
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It’s a pretty sure bet that the Federal Reserve will raise interest rates next year — possibly as early as spring — and also taper its purchases of mortgage-backed securities, which could kick mortgage rates up as well. Less certain is where mortgage rates will end up, and how a sharp hike will affect the white-hot housing market.

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There seems to be little consensus among economic and housing experts. As Fortune reported this week, some real estate insiders think rising rates will cause a shock to the housing market, while others contend that the market is strong enough to withstand even a big uptick in rates.

Among those bracing for a big negative impact is the Mortgage Bankers Association, which projects that the 30-year fixed mortgage rate will rise to 4% at the end of 2022, which would be a gain of nearly 1 point over the current rate. Such a rate hike might cause the median price of existing homes to fall 2.5% next year after rising in double digits in 2021, the group said.

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That stands in stark contrast to recent projections from Realtor.com, which sees median home prices rising 2.9% next year, as GOBankingRates reported earlier this month.

There’s also little consensus on how much mortgage rates will rise. Fortune pointed to Fannie Mae, which predicts that the average 30-year mortgage rate will only rise to 3.3% by the end of 2022. From a home buyer’s perspective, the difference between a 4% mortgage rate and a 3.3% rate is substantial, amounting to about $200 per month on a $500,000, 30-year fixed mortgage.

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But even if the Mortgage Bankers Association is correct in its forecast for a 4% rate at the end of 2022, that doesn’t necessarily mean home prices will decline. Nik Shah, CEO of Home.LLC, told Fortune he also expects mortgage rates to hit 4% a year from now, but that “home prices will continue to increase [in 2022], just at a decelerated rate.”

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His reasoning is that the gap between supply and demand in the U.S. housing market will help bolster prices, as the inventory of available homes continues to lag behind demand. Freddie Mac estimates that the market is still about 4 million homes short of fulfilling current buyer demand.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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