Home loans are still very hot
LOS ANGELES – Fierce competition, low mortgage rates and soaring prices that helped lift mortgage lending to record highs last year are expected to keep lending growing even further this year, experts say.
According to the Mortgage Bankers Association, banks lent an estimated $ 1.61 trillion on home purchases last year, up about 9% from 2020. That beats the $ 1.51 trillion loaned out at the height of the housing bubble in 2005, its highest level since 1990.
Lenders issued 4.74 million loans to borrowers who bought homes last year, up from 4.92 million in 2020, according to the association. Even so, the dollar value of loans available for purchase rose last year as home prices skyrocketed , often because homebuyers agreed to pay well above the seller’s purchase price in order to outbid competing bids.
“Strong demand for housing, sustained increase in demand for housing, limited supply, rising prices – this has led to this record level of purchases in the past year,” said Mike Fratantoni, chief economist of the association.
The housing market has strengthened during the pandemic as many Americans have moved to working from home, making additional housing a major issue. Steady job growth, an all-time high stock market, rising rents, and the expectation of higher mortgage rates have also spurred homebuyers, although skyrocketing prices and historically low homes for sale have shut many others out.
Average US house prices in October were nearly 20% higher than a year earlier, according to the latest S&P CoreLogic Case-Shiller House Price Index.
The housing market is expected to continue booming this year, which is why the association predicts that the dollar value of home loans available for purchase will soar to a new high of $ 1.74 trillion.
While the inventory for sale may be a little better than it was in 2021 as home builders are building more homes, it still won’t be enough to give buyers the upper hand, Fratantoni said.
“2022 will still be a seller’s market,” he said. “There is more demand than supply, so we are very confident that prices will continue to rise.”
LESS PURCHASING POWER
In the meantime, this year homebuyers are likely to have less purchasing power to cope with soaring house prices.
The exceptionally low mortgage rates, which helped fuel demand in the housing market, are expected to rise further in 2022 as the US Federal Reserve expires its monthly bond purchases since the early days of the pandemic. The central bank has already signaled that it will probably start raising interest rates this spring in order to contain the steep rise in inflation.
The average interest rate on the 30-year fixed-rate mortgage remained around 3% in 2021. The association’s forecast is that this average rate will rise to 4% this year.
That is close to the forecasts of other housing economists. The national association of real estate agents predicts that the average rate will rise to 3.7% by the end of this year. Greg McBride, senior financial analyst at Bankrate, predicts interest rates will peak at 4% but will end the year at 3.5%.
“It’s going to be a little roller coaster ride,” said McBride. “The higher interest rates that we expect in 2022 will not take the wind out of the real estate market, but will change the refinancing equation significantly.”
According to the Mortgage Bankers Association, homeowners raised around $ 2.32 trillion to refinance their mortgages in 2021, down about 12% from 2020 when refinancing hit a record high. Taken together, mortgage refinances amounted to nearly $ 5 trillion in 2021 and 2020.
The association predicts that mortgage refinancing will fall to $ 870 billion this year, its lowest level since $ 467 billion in 2018.
CURRENT MORTGAGE PRICES
According to the latest data released by Freddie Mac on Thursday, the 30-year average fixed interest rate rose to 3.22% this week. It was 3.11% a week ago and a record low of 2.65% a year ago. This is the highest value of the fixed 30-year average since May 2020.
Freddie Mac, the state-approved mortgage investor, aggregates the interest rates of around 80 lenders across the country to produce weekly national averages.
The 15-year fixed interest rate rose to 2.43% with an average of 0.6 points. A week ago it was 2.33% and a year ago it was 2.16%. The five-year average of the variable interest rate remained constant at 2.41% with an average of 0.5 points. A year ago it was 2.75%.
“With little economic data during a slow holiday week, the markets appear to be pricing in continued economic recovery even though Covid cases have increased due to the Omicron variant,” said Paul Thomas, vice president of capital markets at Zillow. “Most indicators continue to point to inflationary pressures with tight labor markets and challenges in dealing with supply chain issues.”
When the Federal Reserve released the minutes of its December meeting this week, it made waves in the financial markets. Stocks fell after the Fed signaled it could pull back on its bond purchases, raise interest rates and sell its balance sheet over the next several months.
According to the protocol, high inflation and a tight labor market could lead them to raise interest rates “sooner or faster than participants expected”. While the Fed doesn’t set mortgage rates, its decisions can influence it.
Information on this article was contributed by Alex Veiga of The Associated Press and Kathy Orton of The Washington Post.