The housing market will likely remain hot, even as mortgage rates and home prices continue to rise, say economists at the government-sponsored enterprises Fannie Mae and Freddie Mac, who remain bullish on housing’s outlook.

The GSEs predict continued high levels of homebuyer demand and growth in purchase originations in 2022.

“Despite some obvious headwinds, the housing market remains strong as the economy grows,” Sam Khater, Freddie Mac’s chief economist, says. “Even as mortgage rates are expected to increase and home prices continue to rise, homebuyer demand remains steady as inventory issues have slightly improved.”

Khater expects that in 2022 strong home price growth will lift home purchase mortgage originations by more than $500 billion from 2020.

Freddie Mac and Fannie Mae economists predict that home prices will grow by nearly 17% overall for 2021 and then slow to about 7% growth in 2022. They predict the 30-year fixed-rate mortgage—which likely will end the year averaging about 3%—will inch up to 3.5% in 2022, a projection similar to expectations by National Association of REALTORS® economists.

Fannie Mae economists say that new single-family construction remains in high demand but continues to be hindered by ongoing supply constraints in materials and skilled labor. Also, economists expect inflation to run higher and suggest that the Fed’s tightening of its monetary policy, first by tapering its asset purchases, will likely impact housing.

Still, “even a modest tightening of monetary policy would of course impact housing, but we expect the effects to be largely muted given current market conditions,” says Doug Duncan, Fannie Mae’s chief economist. “Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices.”