How Interest Rates Will Change the 2022 Housing Market
Just when you thought mortgage interest rates couldn’t get any lower… you were right. It looks like rates could face a steady rise this year. But, there’s good news too. 2022 could bring more housing inventory, continued home equity increases, and still historically low rates (albeit, a bit higher than 2021). While we can’t peer into the future of housing, we do have some clues about what’s coming. Here’s our best guess at this year’s housing market.
Interest Rates and the 2022 Housing Market
The new year brought the highest mortgage interest rates since March of 2020. Here’s the gist:
- The average interest rate for 30-year fixed-rate mortgages increased from 3.5% to 3.64% in just two weeks’ time. (As of January 19th).
- During the same timeframe, home purchases increased by almost 8%. This increase was probably due to concerns of even higher rates and the end of the holiday season.
- Rate and Term refinances are expected to decrease as mortgage rates are expected to continue to rise throughout the year.
- While rates are higher, they are still historically very low. Add that to the healthy home appreciation of the last few years and we can expect more borrowers to tap into their home equity with cash-out refinances.
- Unemployment rates are down by 2.8% since last year. This competitive jobs market may poise hopeful homeowners for house hunting this year or next.
- With more new homes being built (to the tune of a 34% increase), supply could increase to help balance out current demand.
All that’s to say, the booming “lower rate” refinance market of the past year and a half is shifting. With more job security comes more hopeful homebuyers. At the same time, new build numbers are increasing across the country. Higher mortgage rates and last year’s 20% appreciation will mean lower appreciation this year. This should be a good shift for the 2022 housing market as home prices won’t continue their incredibly steep climb. But for now, we’ll tell it to you straight: home inventory remains low and sale prices are high.
The biggest takeaway? It looks like 2022 will be a transition year – from refinancing fever to a house-hunting revival.
The Remote Work and Great Resignation Effects
Did your favorite clothing store replace smart-looking office casual attire with fleece sweatpants and relaxed t-shirts? Thought so. You’ve probably had those hoodie strings cinched over your eyes for the past year if you haven’t noticed the remote-work trend. As of September 2021, 45% of all full-time employees worked remotely. Of course, the trend has more far-reaching effects than cozy fashion selections.
Homebuyers appear to be gravitating toward houses with more bedrooms, finished basements, and isolated office spaces. What was once a luxury is now a necessity for many. The need for more square footage could further shift home buying action from crowded urban centers to sprawling suburbs. That would mean more demand and home appreciation for you suburbanites. Hey, you may not have the coolest coffee shop just outside your door, but you’ve got wide-open spaces.
We’ve established the upcoming coolness of the burbs, but something else is all the rage these days: quitting. In 2021, 4 million people left their jobs. Yup, we’re talking about The Great Resignation. The most interesting part is, most of these “quitters” were between the ages of 30 and 45. That’s the same group of people buying houses most often (on average).
While job changes can make it more difficult to qualify for home loans, the Great Resignation could spark a home purchase boom. This is how:
- Those who quit to take control of their work lives are probably establishing their own kind of grind from a home workspace. This includes both types of “quitters”: people who sought out remote positions and people joining the gig economy. And that means they’ll need more space.
- Remote work and self-employment allow more freedom to move to new locations. Maybe they’ve been dreaming of leaving a cold northern state for a balmy coastal location. Or, perhaps they prefer a quieter town to the hustle and bustle of the close-to-their-workplace urban locale. If they don’t need to drive to the office, they can move wherever they want.
- These motivations could precipitate more home sales and purchases in years to come.
But there’s a catch to this housing projection. Let’s go back to the home loan qualification thing… mortgage lenders look for job security and proof of income amounts. This information helps them determine how much you can borrow and reduce the risk that you won’t be able to make your monthly payment. Jobs with variable incomes could make it more challenging to get a home loan. That’s not to say it’s impossible. But, if you were part of the Great Resignation, you might consider reaching out to a mortgage expert for information on what you could qualify for.
Where are We Headed?
Things are looking pretty good for the 2022 housing market. While rising interest rates don’t sound all that great, other factors might help balance the market. Increasing job security, more new builds, and moderated home appreciation should set us on a path away from wild bidding wars.
Don’t get us wrong. Houses are really expensive right now and there aren’t many homes on the market. But, if things continue without a dramatic turn in the Covid situation, we’re headed in the right direction. With that in mind, we’ll leave you with just a few tips:
- If you plan to refinance for a better rate or to get cash from your home equity, do it now.
- If you hope to buy a home and your future interest rate is very important, start house hunting sooner than later.
- If you’re thinking of buying a home and want more options than you’re seeing currently, consider waiting until 2023. (Or, until homeowners become more comfortable with selling).
- Thinking of selling your place? Now could be a good time to do it. With low housing inventory, would-be buyers will likely flock to your listing.
- Did you recently enter the gig economy or start your own business? If you think you’ll need a home loan soon, be sure to carefully document your income. This should help when you apply for a mortgage.
Things are looking pretty good for the 2022 housing market. While rising interest rates don’t sound all that great, other factors might help balance the market.
See more at…https://www.cardinalfinancial.com/blog/2022-housing-market/