Mortgage Forecast for 2022: Higher Rates, Fewer Refis, and More Purchases

Key highlights from this report:

  • A new mortgage forecast suggested we could see higher rates in 2022.
  • The MBA predicted 30-year loan rates could hit 4% by the end of 2022.
  • They expect mortgage refinancing to drop off considerably, as a result.
  • Surprisingly, the group predicted an increase in purchase loans next year.

On October 17, the Mortgage Bankers Association (MBA) published its annual forecast for the mortgage industry and housing market. The industry group offered predictions for 2022 and extending into 2023.

The biggest takeaway from their latest mortgage rate forecast has to do with a gradual rise in borrowing costs. MBA’s research team expects the average interest rate for a 30-year fixed home loan to climb steadily over the coming quarters, perhaps reaching 4% by the end of 2022.

As a result of this (projected) rise in rates, their forecast also predicts a sharp decline in mortgage refinancing activity. And that’s logical. Historically speaking, we tend to see a decline in home refinance loans as rates rise.

Current Mortgage Rate Trends, as of October 2021

Let’s start with a quick review of where we are right now, before revisiting MBA’s mortgage forecast for 2022.

As of October 19, the average rate for a 30-year fixed home loan was 3.05%. This is based on the weekly national survey conducted by Freddie Mac, the government-sponsored corporation that buys loans from lenders.

The chart below shows average mortgage rates for three popular home loan options: the 30-year fixed (blue), the 15-year fixed (green), and the 5/1 adjustable ARM loan (orange). It was published by Freddie Mac in mid-October.

As you can see, rates have declined in a more-or-less steady fashion over the past three years. But over toward the right side, you can see where the downward trend stopped and rates began to “hover.” On the far-right side, which represents the past few weeks, you’ll notice the start of an upward climb.

Mortgage rate chart October 2021
Rate chart label

When publishing the mid-October survey chart shown above, Freddie Mac’s researchers included the following explanation:

“The 30-year fixed-rate mortgage rose to its highest point since April. As inflationary pressure builds due to the ongoing pandemic and tightening monetary policy, we expect rates to continue a modest upswing.”

The Freddie Mac statement above is just one of several mortgage rate forecasts for 2022 predicting a rise in borrowing costs. This could have a cooling effect on some housing markets across the country, especially the pricier ones where many buyers are already getting squeezed out.

MBA Forecast: 30-Year Loans Reach 4% by End of 2022

As mentioned earlier, the Mortgage Bankers Association predicted the average rate for a 30-year fixed home loan would rise to 4% by the end of 2022. That would be quite a bit higher than where we are right now (3.05%), during the third week of October.

To quote the October 17th MBA report:

“MBA’s baseline forecast is for mortgage rates to rise, with the 30-year, fixed-rate mortgage expected to end 2021 at 3.1% before increasing to 4.0% by the end of 2022.”

In addition to a rise in borrowing costs, the MBA mortgage rate forecast for 2022 predicts a major decline in home refinancing activity.

They expect refinance loan originations to decrease by 62% next year, compared to 2021. The industry group estimated that refinancing originations will total $2.26 trillion in 2021, followed by $860 billion in 2022.

This prediction goes hand-in-hand with their mortgage rate forecast for 2022. When home loan borrowing costs rise, refinancing activity tends to decline. Higher interest rates would mean that fewer homeowners could benefit from a refi. In other words, it reduces the number of refinancing candidates.

More Purchase Loan Originations Next Year?

The one aspect of this forecast that doesn’t seem to make sense has to do with purchase loans (used by home buyers).

MBA predicted that purchase mortgage originations would increase by 9% in 2022, hitting a new record of $1.73 trillion. That seems counterintuitive, given the steep rise in home prices that has frustrated many buyers.

In support of this outlook, they pointed to “robust homebuyer demand from millennial households, households seeking more space, and still-low mortgage rates.” 

Granted, this is a mortgage forecast — not a certainty. It’s an informed outlook based on current trends within the housing market and economy. There’s no way to predict future mortgage trends with complete accuracy. But the general consensus among the MBA and other forecasters is that borrowing costs will rise to some degree as we move into 2022.

According to Mike Fratantoni, Chief Economist for the MBA:

“Mortgage lenders and borrowers should expect rising mortgage rates over the next year, as stronger economic growth pushes Treasury yields higher.”

This isn’t the only trend borrowers should keep an eye on. Recent forecasts suggest that house values will continue to climb into next year as well.

Rising Prices an Additional Concern for Buyers

Rising home prices are another concern for buyers across the U.S. According to Zillow, home values in the U.S. rose by more than 18% over the past 12 months. That’s miles above the historical averages going back 30 or 40 years.

Many forecasters predict that prices could rise more slowly in 2022 than they have over the past year. That would be a welcome change, from an overall housing and economic standpoint. But in most U.S. cities, home values will almost certainly continue to climb — to some degree — over the coming months.

Add in the 2022 mortgage rate forecasts that predict higher borrowing costs, and you could make a strong argument for buying a home sooner rather later. Those who postpone their purchases might pay a price for it. Literally.

Disclaimer: This article contains forward-looking views regarding mortgage and housing market trends. Such predictions are the equivalent of an informed opinion and should be treated as such. The Home Buying Institute makes no claims about future housing or economic conditions and trends.