Mortgage Rates Prediction: Will Mortgage Rates Continue Rising in January 2022?

mortgage rates forecast next 90 days

Despite some volatility over the last several months, the mortgage rates trend continues to slowly climb back up. Freddie Mac attributes these changes to economic improvements as well as changes to monetary policy, such as the Federal Reserve’s decision to pull back on purchasing mortgage-backed securities (MBSs). However, mortgage rates aren’t the only things going up.

Inflation rates are also rising, despite a “strong economy,” according to Fannie Mae. As a result, members of the Federal Reserve decided to wrap up its buying of assets at a quicker pace during their December meeting.

The bottom line for consumers? While the housing market is still a challenge for home buyers, the mortgage rates prediction is that interest may likely go up, making it a more expensive financial venture the longer consumers wait to pull the plug and purchase a home

 Mortgage Rates Forecast for January 2022

Just as with December 2021, the mortgage rates forecast for January 2022 is for interest on housing to continue to steadily increase.

As of December 21, 2021, 30-year fixed-rate mortgages sat at 3.12%, 15-year fixed rates at 2.34%, and 5/1-year adjustable rates at 2.45%, according to Freddie Mac. Comparatively, Wells Fargo’s rates sat at 3.34% for 30-year fixed-rate mortgages, 2.589% for 15-year fixed-rate mortgages, and 3.046% for 30-year jumbo loans. 

As of December 21, 2021, Zillow reported refinance rates of 2.83%, a three-point climb from its last assessment. Because of the low interest rates, refinancing was popular among consumers during the first half of 2021, according to Freddie Mac’s October 2021 research on refinance trends. While refinance rates remain below 3%, the mortgage refinance rates forecast is that interest on these loans will climb as well. This mortgage refinance rates prediction could play a role in lowering the number of Americans that want to refinance their mortgages and take advantage of lower rates.

Judging by economic factors and policy changes, those mortgage rates may go up even higher come January 2022. 

In its Primary Mortgage Market Survey, Freddie Mac stated that they expect rates to continue to rise into 2022, leaving a number of potential buyers on the sidelines, due to a lack of room in their budgets.

This increase in rates may come from several directions.

  • Even with house prices gradually slowing down, costs remain high due to demand and a lack of supplies able to keep up with the demand. However, according to Freddie Mac’s latest quarterly forecast, the institution projects that house price growth may slow to 7.0% in 2022, down from 16.9% in 2021. This decrease in price growth may ease the burden on the supply chain, though prices are expected to remain high.
  • Inflation continues to be a concern for the American economy. In December 2021, the consumer price index (CPI) overall increased by 6.8%, according to the Bureau of Labor Statistics. This was the greatest 12-month rate increase since June 1982. This wasn’t the only rate to increase, though. Price indexes for food and energy rose to 6.1% and 33.3%, respectively, making headlines as the highest rate increases in 13 years.

Back in March 2020, in order to help stabilize the American economy, the Federal Reserve began purchasing MBSs to help keep mortgage rates low. On a monthly basis, the Federal Reserve spent a total of $40 billion on MBSs. However, this monetary strategy was only meant to be temporary. On November 3, 2021, the Federal Reserve decided to taper off its purchases, cutting back by $5 billion in MBSs. At its December 15, 2021 meeting, out of concern for inflation rates, the Federal Reserve decided that beginning in January 2022, the government entity will back down on its purchases by $20 billion in Treasury securities and $10 billion MBSs.

 Mortgage Rate Predictions for Q1 of 2022

The upward trend in mortgage rates will likely continue well into the first quarter of 2022.

In October 2021, Freddie Mac predicted in its quarterly forecast that mortgage rates would continue to inch higher for the rest of 2021, rising to 3.5% in 2022. However, mortgage rates aren’t projected to reach quite that high during the first quarter of 2022.

Freddie Mac predicts mortgage rates will hit 3.4% during the first quarter, then eventually rise to 3.5% during the second quarter. Freddie Mac also estimated that mortgage rates will continue to increase throughout 2022 with a projected 3.6% in quarter three and 3.7% in quarter four.

According to Fannie Mae, the interest rates in the first quarter may depend on supply chain issues in the housing market, issues that have plagued the industry as a result of COVID-19, and high demand among consumers for housing.

“Our baseline inflation forecast expects the CPI to top out on an annual basis at a little above 7% in the first quarter [of] 2022,” 

In its economic and housing outlook report, Fannie Mae stated that should supply chain issues continue for longer than expected, an additional energy increase occurs as a result of minimal additional supply coming online, and accelerating wage pressures – an inflation rate above 8% or 9% by the end of the second quarter 2022 is certainly plausible.

This gradual increase in mortgage interest rates may be a sign that homebuyers may have to bid mortgage rates below 3% farewell for the time being.

 projection for Q1 2021.

How Mortgage Rates May Look in January 2023

Mortgage rates are predicted to surge even higher come January 2023.

“The forecast is now calling for interest rate increases in the second and fourth quarters of 2022, and then quarterly through 2023,” according to a press release from Fannie Mae

The Mortgage Bankers Association predicts in its latest MBA Mortgage Market Forecast that during the first quarter of 2023, the year will kick off with a 4.1% interest rate on 30-year fixed-rate mortgage rates. By the end of the year, the Mortgage Bankers Association predicts 30-year fixed-rate mortgages to reach an interest rate of 4.3%.

Mortgage rates haven’t risen above 4% since before the COVID-19 pandemic, specifically since the week of May 23, 2019, when 30-year fixed-rate mortgage rates were at 4.06%.

As previously stated, this gradual increase may be due to ever-increasing inflation, monetary policies, and the Federal Reserve’s goal to back off MBBs and give mortgage rates room to escalate. By January 2023, the Federal Reserve will have cut back on its role in maintaining low-interest rates on mortgages for 15 months.

Common Mortgage Rate Strategies

While mortgage rates may still be fluctuating for a bit, Americans may still want to prepare for the potential of higher mortgage rates eventually. As the economy continues to show signs of growth and improvement, mortgage rates will likely rise with it, though it may be a gradual process.

In the meantime, there are strategies Americans can utilize that may help them capitalize on low rates. 

  • Explore mortgage rate marketplaces: Try to avoid settling for the first low rates you see advertised. Often, those rates are geared toward borrowers with excellent credit scores and the finances to put down large down payments, so some borrowers may not qualify for rates as low as advertised. Secure the best offer for your credit and financial situation by comparing the best mortgage rates on an online marketplace like Lendstart. This can make comparing rates, fees, and terms much more convenient so it’s easier to lock down the best deal.
  • Consider refinancing: Freddie Mac’s mortgage refinance rates prediction forecasts that refi rates are going to get less attractive to borrowers once mortgage rates start to increase again. If borrowers have been pondering refinancing their homes for a while now, it may be wise to take advantage of low rates before they start increasing toward the end of 2021 and into the next year. By doing this, borrowers could potentially save money in the long run, especially if they purchased their home before the COVID-19 pandemic at a higher rate. 
  • Look into buying a second home: In March 2021, Federal Housing Finance Agency (FHFA) limited Fannie Mae and Freddie Mac’s capacity to offer loans for second homes. In mid-September, however, the FHFA and the U.S. Department of the Treasury suspended that measure which may make it easier for borrowers to purchase a second home or investment property at a lower rate than usual. Though, there’s no telling how long this policy suspension will last.

With political and economic events influencing the US economy, higher mortgage rates may be on the horizon for new homeowners for the remainder of 2021 and into 2022. Since there’s a chance the housing market won’t see these rates again for a while, some borrowers may be tempted to sign up for a new home loan prematurely. Borrowers should weigh their options and consider their timing carefully as that may make a difference in how much money they end up spending on their mortgage overall.

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