Since the start of the covid pandemic, the housing market has been red hot as a combination of low rates, short supply, and increasing remote work resulted in a sharp spike in originations that have lasted for almost one and a half years.
The mortgage industry enjoyed the benefits of historically low-interest rates while facing margin compression, ransomware attacks, and a new administration set to reorganize the priorities of housing policy and regulation.
On the flip side, the rising housing market made it impossible for people to find a house. This year was a nightmare for homebuyers. Even if they could find a home within their budget, there was a good chance they would have lost it in the bidding war.
The market is finally starting to show signs of cooling down as mortgage rates creep up with the 30-year fixed-rate predicted to hover between 3.5% and 4% in 2022. The Mortgage Bankers Association and the GSE’s are predicting a sharp decline in origination volumes led by plummeting refinance volumes.
A gradual uptick in mortgage rates will make affordability a top consideration for home buyers, especially the 45 million millennials aged 26 to 35 who are at prime first-time homebuyer age. Demand from these young households will keep the market competitive and fast-paced despite a small uptick in housing inventory as builders continue to ramp up production, increasing single-family starts by 5% in 2022.
Moreover, inventory will finally increase due to more housing construction and the ending of the mortgage forbearance program. Cooler housing demand resulting in more supply will put a curb on the increasing housing prices. It is expected that home prices will increase only by 3% to 5% nationally.