Mortgage rates have breached 4% for the first time since the summer of 2019, and these rates may continue to rise, particularly because of rising inflation. However, the Russia-Ukraine crisis is also seen as a contributing factor.
Some institutions, such as Freddie Mac, trace the rise in inflation to economic growth slowing down in 2022 as well as changes to monetary policy. One of the most impactful policies is the Federal Reserve’s decision to pull back on purchasing mortgage-backed securities (MBSs). However, mortgage rates aren’t the only thing intensifying in price.
Despite the end of 2021 being dubbed a “strong economy” by Freddie Mac, inflation rates are projected to increase as the beginning of the second quarter starts. To offset rising interest rates, members of the Federal Reserve announced they would raise rates during its March meeting.
What does this mean for American consumers? While prices in the housing market have “moderated,” it may still present a challenge to looking to purchase a home.
Mortgage Rates Forecast for April 2022
Like in previous months, April mortgage rates are expected to increase. As of March 18, 2022, 30-year fixed-rate mortgages sat at 4.16%, 15-year fixed rates at 3.39%, and 5/1-year adjustable rates at 3.19%, according to Freddie Mac. Comparatively, Wells Fargo’s rates sat at 4.25% for 30-year fixed-rate mortgages, 3.75% for 15-year fixed-rate mortgages, and 3.875% for 30-year fixed-rate jumbo loans.
These numbers are much higher than Freddie Mac’s quarterly prediction of mortgage rates in the second quarter of 2022, sitting around an average of 3.6%, with rates jumping up only to 3.7% during the third quarter. This is partly because consumer spending turned out to be much higher than predicted. This increase in mortgage rates is creating a financial hurdle for many potential consumers.
As of March 18, 2022, Zillow reported refinance rates for 30-year fixed mortgages were at 4.01%. Because of the low-interest rates, refinancing was popular among consumers during the first half of 2021, though they are quickly dropping in 2022. According to Freddie Mac’s quarterly report, refinance originations dropped from $2.6 trillion in 2021 to below $1 trillion in 2022.
While refinance rates remain relatively low, the mortgage refinance rates forecast is that interest on these loans will eventually 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.
Mortgage rates in April will depend on multiple political and economic factors.
- The Federal Reserve: During its March 2022 meeting, the Federal Reserve decided to raise interest rates by 0.25% in response to spiking inflation rates. This was the first rate increase the Federal Reserve has done since the end of 2018. 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. In January 2022, out of concern for inflation rates, the Federal Reserve began backing down on its purchases by $20 billion in Treasury securities and $10 billion MBSs.
- March employment report: April mortgage rates may depend partly on the March employment report from the Bureau of Labor Statistics. The results of the February Employment Situation report were considered a pleasant surprise as numbers came back much higher than expected. About 678,000 jobs were added in February, while unemployment decreased to 3.8%.
- Supply and demand challenges: 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 quarterly forecast, the institution projects that house price growth may slow to 6.2% in 2022 from 15.9% in 2021. Freddie Mac expects growth to drop even further in 2023 to 2.5%. This decrease in price growth may ease the burden on the supply chain, though prices are expected to remain high.
- Inflation increases: 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.
Mortgage Rate Predictions for Q2 of 2022
The upward trend in mortgage rates will likely continue well into the first quarter of 2022.
While Freddie Mac has yet to release its second 2022 quarterly forecast, the institute predicted in its January quarterly forecast that mortgage rates would continue to inch higher throughout 2022, rising to 3.5% during the first quarter, up from 3.1% in the last quarter of 2021.
Freddie Mac predicts mortgage rates would average out to 3.6% during the second quarter, though they are currently much higher than that. Freddie Mac also estimated that mortgage rates will continue to increase throughout 2022 with a projected 3.7% in both quarters three and four.
According to Fannie Mae, the interest rates may depend on the conflict between Russia and Ukraine as well as supply chain issues in the housing market.
“We expect home purchase loan volume to hold up reasonably well but refinance activity to fall off considerably over our forecast horizon, perhaps totaling only a third of originations, unless there is a drop in mortgage rates, which we do not expect,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
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 quite some time.
How Will Mortgage Rates look in April 2023?
It can be difficult to predict what mortgage rates will look like a year from now, but we can start by understanding what Freddie Mac and Fannie Mae are forecasting for the second quarter of 2023.
Freddie Mac predicts that quarter four of 2022 will end with mortgage rates at 3.7% for 30-year fixed-rate mortgages. Freddie Mac forecasts that the second quarter of 2023 will have mortgage rates at 3.9% for 30-year fixed-rate mortgages (a .1% increase from the previous quarter).
Meanwhile, Fannie Mae anticipates mortgage rates to be a bit lower for 30-year fixed mortgage rates—3.4% for both the last quarter of 2022 and 3.5% for the second quarter of 2023.
As of mid-March 2022, mortgage rates are currently higher than either of these institutions predicted, so it wouldn’t be too far-fetched to predict that rates could look much higher than their 2023 predictions as well. This may not be great news for homebuyers as paired with continued supply-chain challenges in the housing market, this could mean much higher prices for homes, making it more difficult for Americans to afford new homes.
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. However, 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 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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