How High Will Mortgage Rates Go in 2022, Due to the Fed’s Actions?

How high will mortgage rates go in 2022?

That’s a hot question right now, given the relative spike in mortgage rates we’ve seen over the past few weeks. A steady upward climb in borrowing costs has captured the attention of home buyers and homeowner alike, who are planning to either buy or refinance a home during 2022.

The short answer (as usual) is that we don’t know exactly how high mortgage rates will go in 2022. But given the fact that they’ve already surpassed long-range forecasts, it seems likely they’ll rise more than previously thought.

How High Will Mortgage Rates Go in 2022?

Are you planning to buy or refinance a home in 2022? Need a mortgage loan to make it happen? Here’s what you need to know right now, as of mid-March 2022.

At the start of this year, the average rate for a 30-year fixed mortgage loan was hovering around 3.2%. That’s based on the nationwide survey conducted by Freddie Mac. As of last week, that average had shot up to 4.16% — an increase of nearly one full percentage.

These numbers reveal several interesting points:

  1. As of last week, mortgage rates were at their highest level since May of 2019.
  2. They’ve already surpassed the long-range forecasts from two industry groups.
  3. Rates could climb even higher in 2022, due to actions by the Federal Reserve.

The chart below comes from Freddie Mac, the government-monitored corporation that buys mortgage loans from lenders and sellers them to investors. It shows the average rate for a 30-year fixed mortgage loan over the past year, based on their nationwide survey.

Mortgage rate chart March 2022
Chart: Average 30-year mortgage rates | Source: Freddie Mac PMMS

As you can see from the above chart, mortgage rates have risen quite a bit since the start of 2022. The sharp upward trend (shown on the right side) caught a lot of analysts off guard, many of whom were expecting a more gradual or “gentle” rise in rates during 2022.

The chart below zooms out even further, showing the 30-year mortgage average over the past three years. As you can see, last week’s average of 4.16% was the highest level since late-April of 2019.

Rates over past three years
Chart: Rates over the past three years | Source: Freddie Mac PMMS

Which brings us back to the question we opened with: How high will mortgage rates go in 2022? One thing seems clear: It’s time for a fresh round of forecasts. Rates in the 4.5% to 5% range aren’t far-fetched at this point.

Time for Some New Long-Range Forecasts?

Could 30-year home loan rates approach 5% by the end of this year? Or is the recent spike more of a fluke, to be followed by a leveling off?

At this point, it’s hard to say. Mortgage rates have already defied predictions and forecasts issued over the past three months.

Back in January, researchers from Freddie Mac predicted that 30-year mortgage rates would average 3.5% during the first quarter of 2022. Beyond that, they forecasted an average of 3.7% through the second half of 2022. But last week’s average of 4.16% has already blown past both of those projections.

In February, the Mortgage Bankers Association predicted that 30-year home loan rates would start the year around 3.8% and rise to an average of 4.3% by the end of 2022. But borrowing costs have already exceeded their Q1 prediction and are fast approaching their end-of-year estimate.

How the Federal Reserve Ties Into This

But let’s circle back (again) to the question at hand: How high will mortgage rates get during 2022?

As we’ve seen over the past month or so, there’s no absolute answer to this question. Mortgage rate predictions can prove challenging in the best of times. And during periods of economic and/or global instability, they’re virtually impossible to get right.

But it seems likely that mortgage rates could rise higher in 2022 — especially when you consider recent actions and announcements from the Federal Reserve.

Following its March 2022 meeting, the Federal Reserve’s policy group announced it would increase the short-term federal funds rate. That’s the rate financial institutions use when transferring money among themselves.

To quote the Fed’s March 16 press release:

“In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate.”

Freddie Mac’s research team was quick to notice this announcement. The following day, when they announced the latest uptick in borrowing costs, Freddie Mac’s team wrote:

“The 30-year fixed-rate mortgage exceeded four percent for the first time since May of 2019. The Federal Reserve raising short-term rates and signaling further increases means mortgage rates should continue to rise over the course of the year.”

To be clear, the Fed doesn’t control mortgage rates directly. Home loan costs are driven by many factors, including demand from investors and broader economic trends. But their policies do have an indirect effect on borrowers.

Generally speaking, when Fed officials increase the aforementioned funds rate, consumer borrowing costs tend to climb as well. This applies to mortgages, car loans, etc. We’ve seen evidence of this in recent days. And we could see further increases throughout 2022. Borrowers be warned.

Disclaimer: This article includes third-party forecasts. Such predictions are the equivalent of an educated guess and do not necessarily reflect the views of the publisher.