Forecast: How High Will Mortgage Rates Go in 2022

Mortgage rates have risen since the start of 2022, reflecting investors' concerns that the economy is heating up and that the Fed will cool it down and reign in inflation. U.S. Treasury bond rates, which mortgage rates follow, encountered two tough patches this year: in late February, when Russia invaded Ukraine, and in mid-May when investors worried about poor consumer spending. Bond yields and mortgage rates declined throughout these times.

Most mortgage-market analysts predict rates will be choppy over the next few months but will settle above where they are now—with the 30-year fixed-rate mortgage just around 5 percent—for the next year or two. The Fed raised interest rates by 75 points on Wednesday, but analysts say the impact on the mortgage market has already been felt. When the Fed announced a rate hike, the average 30-year fixed mortgage rate dropped sharply. According to a Bankrate poll, the average 30-year fixed rate was 5.59 percent, 17 points lower than last week.

After a turbulent June and early July, rates fell. July inflation was 9.1%, more than forecast. In response, the Fed shifted from contemplating a 50-basis-point boost to a bigger 75-point hike to confront increasing inflation. Freddie Mac's 30-year fixed rate fell 24 points to 5.3% in a comparable poll. According to the Federal Reserve, inflation remains high due to pandemic-related supply and demand imbalances, increased food and energy costs, and broader price pressures.

The Fed's policies affect lenders' cost of money, not mortgage rates. Most lenders have factored in inflation-related cost hikes. Since December, costs have paralleled Fed moves. Mortgage rates sometimes rise before predicted lender cost rises to minimize sticker shock. Therefore, volatility in mortgage rates is expected. The recent Fed rate rise affects your finances. It will undoubtedly raise credit cards, home equity, and line of credit interest rates (HELOCs).

Rate rises generate increased rates on high-yield savings accounts and other savings instruments. Experts say the recent Fed rate hike shouldn't prompt homebuyers to hesitate or change their plans. Rate and conditions vary on a borrower's credit, loan type, and mortgage lender. ARMs and HELOCs are likewise related to the prime rate, but 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy. Rates have practically doubled since the start of the year, reducing buyers' purchasing power.

In a few months, consumers will feel the Fed's rate hike. In one to two billing cycles, credit card and vehicle loan rates will certainly rise. Those with adjustable-rate mortgages or who want to get one soon should expect higher rates. Many Americans with variable-rate private student loans might see interest rates hike next month. Home prices, rentals, and inflation are all at historic highs. A recession is imminent, and more corporations are declaring layoffs to stave off a consumer spending slump.

People are contemplating big-ticket purchases because of employment uncertainties. Higher borrowing rates have impacted real estate demand. New and existing house sales declined in the first half of the year, while contract signings dropped sharply in the summer. As a result, many house sellers are seeing their properties linger on the market longer. Price cuts are a go-to for sellers. As fall and winter approach, we may anticipate home markets to rebalance and pick up speed.

Will Mortgage Rates Go Down in 2022?

Mortgage experts are divided over where rates are headed in the coming week (July 28-August 3). In response to Bankrate's weekly poll, 50 percent say rates are going up, and 50 percent say rates are going down. Slowing economic growth and Fed rate hike fears will drop bond yields and mortgage rates. Freddie Mac reports that the average 30-year fixed mortgage rate rose 248 basis points from Jan. 6 to June 30, 2022.

Current Mortgage Interest Rates (Source: Bankrate.com)

The Fed raised rates in June to battle inflation. The next day, mortgage rates jumped 55 basis points (0.55%) week-over-week, the most since 1987. With the pandemic's waning influence, inflation at 40-year highs, and the Fed predicting four more rises, interest rates might rise this year. An imminent recession has produced rate decreases and might cause more any week. Freddie Mac, the MBA, and other industry heavyweights disagree on whether 30-year mortgage rates will rise or level out in August 2022.

Experts are forecasting that the 30-year, fixed-rate mortgage will vary from just above 5% to as high as 7% by the end of 2022. Here are their more detailed mortgage interest rate predictions for 2022.

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