Mortgage interest rate forecast for January 2022

The tide in another calendar year has turned, and now is the time of year when we traditionally make resolutions to get in shape, eat healthier or spend more time with friends and family.

Another thing to add to your list: Stop procrastinating and refinance your mortgage. This is because interest rates are expected to rise from their near-record lows in the coming month and beyond. Where will benchmark 30-year fixed mortgage rates and their 15-year cousin land in January? Our experts tune in below.

Temps are falling while mortgage rates are rising

It's been a whirlwind through 2021, from the pandemic to financials. Last month, the Fed proposed In 2022, there were several rate hikes to combat rising inflation. It signaled that starting this month it will increase its monthly purchases of Treasury bonds and monthly mortgage-backed securities by $20 billion or. Will cut $10 billion.

Coronavirus numbers continued their alarming rise amid worrisome reports of the spread of the Omicron variant and vaccination booster rates that were lower than expected. And the Biden administration's Build Back Better legislation suffered a potentially fatal setback.

All of these and other factors point to a climate of higher rates in early 2022.

"Increased inflation and the Fed's acceleration of curbs will push mortgage rates higher in January. I expect the 30-year fixed-rate mortgage to average 3.2 percent this month and the 15-year fixed-rate mortgage to average 2.5 percent," says Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors.

Inflation recently rose to its highest level since 1982, and history shows that rising inflation drives up the yield on 10-year U.S. Treasury bonds.

"Higher inflation erodes the yield that an investor in a bond or loan holds over time, and bonds are not more attractive to investors. This in turn causes bond values to fall and yields to rise," says Evangelou. "Consequently, mortgage rates are going up because they are tied to the yield on 10-year Treasury bonds."

In addition, the Fed's curtailment of bond and mortgage-backed security purchases means consumer mortgages currently being sold to Fannie Mae and Freddie Mac will have to find other buyers – a strategy that will also contribute to higher mortgage rates.

Greg McBride, senior financial analyst at Bankrate, doesn't see much change in mortgage rates. "With increased inflation, mortgage rates could drift a bit higher in January," McBride said, expecting 30-year and 15-year rates to average 3.5 percent and. 2.7 percent increase.

Rick Sharga, executive vice president of RealtyTrac, on the other hand, doesn't believe mortgage rates will rise much higher than the average rate in December.

"This is because market conditions should not change significantly in the next 30 days. For example, interest rates for the 30-year fixed-rate loan are expected to be around 3.1 percent, compared with 2.3 percent for the 15-year fixed-rate loan," says Sharga.

Mortgage interest rate forecast for the first quarter

Fannie Mae expects a 30-year fixed rate of 3.1 to 3.2 percent in the first quarter of 2022, while the Mortgage Bankers Association projects 3.3 to 4 percent and Freddie Mac projects 3.4 to 3.5 percent.

"An upward trend in interest rates is likely to continue through most of the first quarter of 2022, with the average 30-year rate ranging from 3.25 percent to 3.5 percent and the 15-year rate in the 2.5 percent to 2.8 percent range," McBride says. "However, if there is a significant improvement in the supply chain and inflation is expected to decline, this could keep mortgage rates in check. But a wild card is the increasing number of COVID cases."

Evangelou expects the 30-year rate to average 3.3 percent in the first three months of the year, compared to 2.6 percent for the 15-year rate. "Mortgage rates will rise in the first quarter as the Fed is likely to stop its purchases of mortgage-backed securities by March. This means that the current stimulus policy will end sometime soon. In addition to doubling the pace of the reduction, three rate hikes will follow during 2022, expected to begin mid-year."

Sharga foresees an average 30-year rate of 3.25 percent by mid-year, rising to 3.5 percent by year-end. "There are a number of factors that point to rate hikes, including higher inflation and the Federal Reserve's plans to accelerate the pace of throttling while raising the Fed Funds rate two or three times in the coming year. Although there is no direct correlation between the Fed Funds rate and mortgage rates, these Fed actions tend to set the tone for the lending environment overall."

Still, world events – especially those impacted by the pandemic – could cause international investors to flee to the relative safety of U.S. government bonds, driving down yields and keeping mortgage rates from rising.

"And if rising mortgage rates lead to a decline in home buying, lenders may try to keep rates lower to stimulate loan volume," Sharga says. "I still think it is more likely that we will see a slight increase in mortgage rates during 2022, but as we have seen in recent years, anything can happen."

New year, new opportunities

The moral of the story? Secure a low interest rate on a purchase or refi loan now if you feel financially secure.

"If you think you are financially ready for a home, you should probably move as soon as possible. Home prices have risen 18 to 20 percent in the past year and are expected to continue rising in 2022 – albeit at a slower pace, says Sharga. "Combined with even slightly rising interest rates, this can make it harder for buyers – especially first-time buyers – to afford to buy a home."

Evangelou agrees with this theory. "I see no reason to hold back on buying or refinancing at this time. Mortgage rates will continue to rise," she says.

Still, don't feel pressured to take action ahead of time.

"If you find that you are pushed to the very limit of your affordability, have an offer come into view unseen or after only five minutes of walking through it, or are pressured to forgo a home inspection, it's better to just walk away," McBride said. "There are worse things than staying where you are or renting for another year or two until you can buy in a more balanced and reasonable market where you can do the necessary due diligence."

Also zoom from micro to macro view for required context.

"Mortgage rates have been at or near historic lows for the past several years. And even with a modest increase next year, these rates will continue to be bargains," Sharga adds. " Borrowers should keep in mind that interest rates in the 3 to 3.5 percent range are also below today's 5.5 percent inflation rate, which in itself is a strong argument for buying a home or taking out a refinance loan if you can afford it."