Lauren Moye, FISM News
Mortgage rates have jumped to their highest level since March 2020, leading some experts to warn that the highly competitive housing market will continue to increase. While the refinance market may begin to fade under the rate hike, homebuyers are anticipated to be eager to lock in a mortgage while they are still lower than pre-pandemic levels.
The 30-year mortgage rates jumped from 3.11% to 3.45% from Dec. 31 to Jan. 14, with greater increases anticipated. These expectations are based on the 40-year-high inflation numbers combined with a recent Federal Reserve Board announcement which hints federal fund rates may be raised multiple times in 2022, both of which will make homeownership more costly.
The housing market also remains limited as new home listings have dropped by 11% compared to last year, according to Redfin data. This led Redfin Chief Economist Daryl Fairweather to describe the homebuyer market stage set “for the most competitive January housing market in recorded history.”
Fairweather said, “Buyers are pouring into the market to claim a home before mortgage rates rise further as new listings slow to a trickle. The conditions are becoming increasingly challenging for first-time homebuyers, who will have to compete against more experienced buyers who are willing to do whatever it takes to win.”
Trends contributing favorably to the buyer market include a 2% increase in mortgage applications at the end of last year and homebuyer demand rated 9% for the first full week of January according to the report. Redfin also showed that homes were overall selling at 100.3% of their asking price from Dec. 13 to Jan. 09. For the seven days ending on Jan. 9, 41% of homes sold over their asking price.
Other important numbers show that the median home-sale price had increased 14% from January 2021 to 2022, including a 16% spike “for the seven-day period ending January 9” where the median price jumped to $365,000. This represents a year-over-year record high increase.
Fairweather did, however, indicate that the boon to sellers could be short-lived, saying, he expected “competition will settle down quickly to levels similar to late-2018” by the time rates increase to 3.6%.
While the market is great news for home sellers, the higher mortgage rates will also mean changes to the refinance market.
“If the inflation numbers we’re seeing now are real and continue to rise, which most agree is the case, we can expect rates to tick higher—leading to a much different mortgage market in 2022,” said Brandon Snow, an Ally bank executive director, to Forbes.
Snow predicted that refinance volumes might “decrease by as much as 50% from 2021 to 2022” since fewer homeowners will want to “refinance until those rates drop again.”