The Mortgage Rates of 2022

 The end of 2022 saw a dip in mortgage rates with the 30-year fixed-rate mortgage at an average of 6.49% even though this is down from the week prior at 6.58% it is still way up from the same time last year which averaged 3.11%.

The Federal Reserve has been boosting the interest rates due to easing the rising inflation but they are falling because inflation has “reached its peak.” According to Jerome Powell, Fed Chairman, they started to cool off on the spike in rates December 2022. Although the rates were dipping and home prices were easing up, homebuyer demand was still slowing down at the end of 2022.

“Mortgage rates continued to drop this week as optimism grows around the prospect that the Federal Reserve will slow its pace of rate hikes. Despite some promising developments, we have a long way to go,” said Sam Khater, Freddi Mac’s chief economist.

“The Fed is indicating that the aggressive rate hikes this year have been enough to start slowing inflation,” according to George Ratiu, Realtor.com’s manager of economic research.

He also goes on to explain that the falling away from 7% rates is a relief to homebuyers. Due to the dip, homebuyers have been more positive and welcome the slow down. Mortgage applications have been rising according to the Mortgage Bankers Association.

“The silver lining is that inventory of homes for sale continues ramping up, even with sellers taking a step back from the market this fall. Buyers who are ready can expect more properties to choose from, and a better negotiating position,” says Ratiu.

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 A drop in growth pushed the housing share of the economy up at the beginning of 2022. The overall GDP dropped at a 1.4% annual rate. This was due to the increased inventories and a jump in imports. The housing's share of GDP rose to 16.7%.

The beginning of the year also saw a 4.8% increase in GDP in terms of residential fixed investment. There will be challenges this year for home construction. There will be a higher interest rate due to tightening monetary policy. RFI added 10 basis points to the headline GDP growth rate at the start of 2022.

Housing activities add to the GDP in two ways. First through RFI which stands for residential fixed investment. This measures how home building, multifamily development, and remodeling contribute to GDP. It can do this through the construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees.

Second is the measure of house services and how it affects GDP. This includes gross rents (including utilities) paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), and utility payments. In the first quarter of 2022 housing services made up 11.9% of the economy, totaling $2.9 trillion on a seasonally adjusted annual basis.

This year the recent interest in housing has definitely affected the economy in a positive way. The shares are near historic norms.

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Third Quarter 2021 Reaches a 13-Year High for Conventional Loan Share of New Home Sales

 

The National Association of Home Builders shared that 75.5% of new home sales that were recorded in the 2021 third quarter was the largest share seen since the first of the 2008 Great Recession. The data comes from the U.S. Census Bureau's Quarterly Sales by Price and Financing.

The Quarterly Sales by Price and Financing reports are surveys of New Residential Sales that are done every March, June, September and December. These are tables that are published through the U.S. Census Bureau.

This record share saw an increase of 1.7 percentage points over 2021 2nd Quarter and has kept rising for the last three quarters. This has shown an increase of 6.9 percentage points since Q4 2021.

As for sales backed by conventional loans, the share increased quarter-over-quarter 74% from Q3 2020 to Q3 2021. The data shows a 4.9 percentage points gain over Q2 2021. FHA-backed sales came in at 11.9% in Q3 2021 which was a decline of 1.1 percentage points over Q2 2021. As for year-over-year, it was a decline of 6.6 percentage points.

VA-backed sales also came in with a decline of 1.7 percentage points from Q3 2020. The data shows a 4.9% decline which is the exact opposite of cash purchases.

Cash purchases rose 7.6% making this a rise for the past two quarters. It is now 4.4% which is the largest we have seen since Q4 2014. For Q3 2021 there was a 7.7% climb with 1,000 sales and a 4,000 increase year-over-year.

The 30-year fixed rate for both conventional and government-backed mortgages also declined quarter-over-quarter. Conventional-backed mortgages reported a 93 basis points decline while government-backed mortgages came in 72 basis points lower than seen in Q4 2019.

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Another Drop in Mortgage Rates

 

Mortgage interest rates have been rising from the record low rates that were seen at the beginning of 2021.  Good news for those that missed out, rates are showing a dip back towards record lows. Freddie Mac reported the 30 year fixed rates have dropped to 2.88% and the 15 year fixed rates have dropped to 2.22%. These are the lowest levels seen since the middle of February 2021.

"Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points," said Sam Khater, Freddie Mac's chief economist. "While this decline is not large, it provides modest relief to borrowers who are purchasing in a market with strong home appreciation and scant inventory."

The rising house prices coupled with rising rates pushed some buyers back from purchasing. Now that the rates are dropping these buyers hopefully will start actively looking again.  George Ratiu of Realtor.com believes the rates will offset the higher home prices.

"For buyers seeking predictable monthly payments, the continuation of low rates will enable them to keep searching for a desirable home with the peace of mind that their housing costs will remain steady for years to come with a low fixed-rate mortgage," he said.

Another positive outcome in the home market is the home inventory is up 5%.  Sellers are encouraged by the rising home prices and are now putting their homes on the market.

"The influx of fresh listings is helping moderate record-breaking price growth, presenting more opportunities for buyers. However, affordability will remain a challenge for many first-time buyers, as the monthly payment for the typical home is still $116 higher this week than it was a year ago."

Refinancing dropped in June 2021 due to the rising rates.  June 2021 saw refinancing 30% lower than in March of 2021 and 60% down from January 2021.  Now since the rates are dipping again, now is a good time for homeowners to revisit refinancing.

If you are in the market for a new home, contact a Realtor who can help with the process from start to finish.  This is a great time for potential homebuyers to take advantage of the low mortgage rates.

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