Mortgage rates play a big role in borrowers’ buying power. Super low rates over the past year have allowed many home buyers to stretch their housing budgets, important as they have faced high home price increases.

But many economists are predicting higher rates over the next few months. What can home buyers expect for 2022?

While the trajectory of rates is never simple to predict, particularly due to the ongoing pandemic, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, told Yahoo that she believes mortgage rates are poised to rise slowly in 2022..

Omicron Variant Threatens More Disruption in Real Estate

“Inflation rose to its highest since 1990,” Evangelou told Yahoo. “When inflation rises, lenders ask for higher interest rates as compensation for the decrease in purchasing power. Thus, if inflation remains elevated for a longer period, that will drift up mortgage rates.”

She expects the Fed to raise interest rates in the first half of 2022 to try to manage inflation.

Evangelou also says higher mortgage rates are on the horizon as the Fed tapers its monthly bond purchases. Mortgage rates often follow the 10-year Treasury yield and, with those expected to rise, mortgage rates are expected to follow.

Evangelou expects the 30-year fixed-rate mortgage to average 3.3% in the first quarter of 2022, rising to 3.5% for the year.

For comparison, the 30-year fixed-rate mortgage averaged 3.11% for the week ending Dec. 2, Freddie Mac reports. Mortgage rates the last few weeks have been moving higher from their sub-3% lows earlier in the year.

Evangelou says that despite the jump in 2022, rates will still not be high: “Consumers shouldn’t panic,” she says. “Even with this increase, mortgage rates will be slow.”

With Americans spending more time at home during the pandemic, their motivation to move has increased, finds a survey from StorageUnits.com, a storage facility firm.

Thirty-seven percent of about 1,250 Americans recently surveyed said they moved into homes with more square footage between March 2020 and October 2021. Thirty-nine percent of Americans say their move was motivated by being able to work remotely, according to the survey.

“The clients I worked with who relocated had various reasons for their moves, but they all came back to one thing—the pandemic changed everyone’s lives,” Rogers Healy, owner and CEO of Rogers Healy & Associates Real Estate, told StorageUnits. “As people realized this was going to be the new normal, it became necessary to find permanent fixes. For many people, the home that once fulfilled their needs no longer worked for the new 24/7 stay-at-home lifestyle.”

Seventy-six percent of Americans between the ages of 18 to 34 changed residences between March 2020 and October 2021; 69% of Americans between the ages of 35 to 54 did, the survey finds. For the younger age bracket, in particular, the attraction of a larger home was a top factor.

New-home sizes are getting bigger as builders see increasing homebuyer interest. As of the third quarter, the median single-family square floor area has increased to 2,337 square feet while the average (mean) square footage of new single-family homes rose to 2,541, according to the latest Census Bureau data, as reported by the National Association of Home Builders. The average size of new single-family homes is 6.2% bigger since the lows reached during the Great Recession.

Remote work has been a big driver of real estate moves, real estate professionals report. “With multiple people in the home working remotely and learning virtually, many families found a need for more private spaces,” Lisa Lewis, a real estate professional with Ebby Halliday, REALTORS®, told StorageUnits. “Open concept homes do not provide the separation of needed workspace. At the same time, people were longing for more elbow room.”

Households found they needed larger homes to accommodate office and classroom space, and remote workers sought more room at home to spread out.

Supply chain woes have been hitting the housing market, affecting appliances, windows, paint, and other items needed to build, repair, or improve home. That has driven prices higher.

New-home buyers have felt the pinch: The median sales price for a new home in October was $407,700, up 17.5% compared to the same time a year ago, according to realtor.com® data. Builders point to higher material costs, as well as labor and lot shortages.

The blame for the bottlenecks has been placed on a variety of causes: the ongoing pandemic, Americans buying more for their homes, a shortage of shipping containers, added tariffs on goods, and other issues. A lack of workers at ports and drivers is also slowing logistics, analysts say.

“Consumers should expect continued frustration with delays and rising prices,” Ali Wolf, chief economist at Zonda, a building consulting firm, told realtor.com®.

Lumber prices remain high, with softwood jumping 70% since the pandemic began. They are down from summer peaks but remain well above pre-pandemic levels. “Those declines in lumber prices have had a positive effect, but they have not come down all the way,” Robert Dietz, chief economist at the National Association of Home Builders, told realtor.com®. “And the pricing of just about everything else has gone up.”

Household appliance backlogs are also pressing on the housing market. Unfilled orders have nearly doubled since the pandemic began, realtor.com® notes. “Whether it’s a remodeling project or a new build, delays in the supply chain are having an impact here in the housing market,” Dietz says.

Costs for paint also have increased, jumping 15% compared to 2019, realtor.com® finds. Paint suppliers are struggling to keep up with the high demand from new-home construction and homeowners’ remodeling projects, housing analysts say.

Furniture costs are up as well—prices on home furnishings are up 5% since 2019, realtor.com® notes. Furniture retailers are reporting that many consumers are waiting months rather than weeks for their furnishings to be delivered.

Mortgage rates held steady this week as the world awaits more information about the severity of the omicron variant of COVID-19 and ongoing supply chain issues. The 30-year fixed-rate mortgage averaged 3.11%, Freddie Mac reports.

“Mortgage rates continue to remain stable notwithstanding volatility in the financial markets,” says Sam Khater, Freddie Mac’s chief economist. “The consistency of rates in the face of changes in the economy is primarily due to the evolution of the pandemic, which lingers and continues to pose uncertainty. This low mortgage rate environment offers favorable conditions for refinancing.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Dec. 2:

• 30-year fixed-rate mortgages: averaged 3.11%, with an average 0.6 point, rising slightly from last week’s 3.10% average. Last year at this time, 30-year rates averaged 2.71%.
• 15-year fixed-rate mortgages: averaged 2.39%, with an average 0.6 point, dropping from last week’s 2.42% average. A year ago, 15-year rates averaged 2.26%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.49%, with an average 0.3 point, increasing from last week’s 2.47% average. A year ago, 5-year ARMs averaged 2.86%.

Freddie Mac reports average commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

As the latest coronavirus variant remains a wild card for the housing market, real estate experts are still predicting a mostly lively year for home sales in markets across the country.

However, home shoppers may find some relief for escalating home prices, which have been trending with double-digit increases over the past year. Lawrence Yun, chief economist of the National Association of REALTORS®, said earlier this week in a housing report that home prices likely will increase at a “gentler pace” over the next several months.

5 Housing Trends to Watch in 2022

Realtor.com® released its 2022 housing forecast, and the following are its predictions for home sales and home prices for the nation’s largest housing markets.

The Federal Housing Finance Agency announced Tuesday that conforming loan limits for mortgages backed by Fannie Mae and Freddie Mac will jump in most of the country to $647,200, an increase of $98,950 from 2021’s limit of $548,250. The higher levels are in response to rising home prices over the past year.

The FHFA’s House Price Index shows that home prices rose 18.05%, on average, between the third quarters of 2020 and 2021. The 2022 conforming loan limits are increasing by the same percentage, the FHFA reports.

However, in areas where the local median home value exceeds the baseline conforming loan limit, the limits will be much higher, the FHFA says. In higher-priced locations such as San Francisco and New York, the conforming loan limits for 2022 will increase to $970,800. In 2021, that baseline was $822,375.

Find out the conforming loan limit for 2022 in your area at FHFA.gov. You can also view the interactive map below on the site.

Contract signings climbed 7.5% in October, and home sales for 2021 are on pace to hit a 15-year high, the National Association of REALTORS® reported Monday. Pending home sales rebounded after a decline in September.

Despite rising mortgage rates, home buyers appear undeterred by higher financing costs and home prices. Contract activity increased month over month in all four major regions of the U.S. NAR’s Pending Home Sales Index is a forward-looking indicator of home sales based on contract signings.

“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” says Lawrence Yun, NAR’s chief economist. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Yun notes that the gain in October assures that total existing-home sales in 2021 will exceed 6 million. That will mark the top performance in home sales in 15 years, Yun says.

He does forecast, however, home prices will increase at a “gentler pace” over the next several months and expects demand to be milder as mortgage rates increase. The 30-year fixed-rate mortgage averaged 3.10% last week, up from a 2.72% average a year ago, Freddie Mac reports.

Last month, contract signings increased at the strongest pace in the Midwest and South regions. The Northeast increased 6.9% in October, but contract signings are still down 10% from a year ago. The Midwest saw contract signings climb 11.8% in October; pending home sales are up 5.1% from a year ago.