Mortgage rates remained fairly steady throughout 2021, hovering just above or below 3% nationally. However, in December of 2021, we saw a sharp spike to 3.1% and a continued increase in the national average since. There doesn’t seem to be any signs of rates leveling off or decreasing any time soon.
The average rate on a 30-year fixed-rate mortgage currently sits at 5.27% according to Freddie Mac’s reporting on Thursday, May 5th. This is a 0.17% increase from the previous week. We haven’t seen mortgage rates this high since December of 2018.
Will Mortgage Rates Continue to Rise in 2022?
As of May 5th, interest rates have increased 9 out of the past 10 weeks. Since the beginning of the year, they have spiked by about 2.16 percentage points. This is the most rapid interest rate increase in a 4 month period since the mid-90s.
Even with the recent rate hike, it is difficult to predict if mortgage interest rates will continue to climb. We often have to look at broader economic markers and environments to forecast the future rate increases, decreases, or plateauing. Many top economic prognosticators are projecting interest rates to continue increasing well into the summer months. Only time will tell us if interest rates on home loans will continue to rise past five or six percent in 2022.
How Higher Rates Affect Home Buyers
There is a direct correlation between interest rates, and buyer activity and behavior. The recent increase has caused buyer activity in many parts of the U.S. to wane over the past 12 months. Overall, the surge in mortgage rates is beginning to encroach on home-buying demand. Mortgage application data shows that applications for loans used to purchase homes are down 17% from a year ago, according to the most recent numbers from the Mortgage Bankers Association.
The monthly payment on a 30-year fixed-rate mortgage is now 20-25% higher than this time last year. This is pricing some buyers out of certain markets and forcing them to re-evaluate where they can purchase a home and what they can afford. Some buyers are putting their home search on hold in hopes that rates begin to decrease soon.
Overall Affect of Increasing Mortgage Rates on the Housing Market
In a pre-pandemic economy, such a steep spike in interest rates coming after multiple years of double-digit home value appreciation, top economists would be predicting a big drop in home prices. This may not be the case in our current economic and real estate environments. Home prices in most areas are likely to continue to increase through the end of 2022. This increase is not expected to be as rapid as it has been over the last few years, but an increase nonetheless. In most of our major markets, there are plenty of well-financed and cash buyers to keep demand high. There is also no reason to believe that the inventory of homes for sale will increase.
The Bottom Line
Even amidst a steep increase, mortgage rates are still relatively low by historical standards. Although we have seen some slowing in the number of new mortgage applications, most markets have not shown a drastic decline in overall buyer activity. This is good news for sellers as long as the inventory of homes for sale remains low.
Overall, with mortgage rates rising, now is the right time to talk with both a financial planner and a mortgage professional to ensure you’ve got a plan in place to ensure your housing and financial needs are both met for the future.