Mortgage Interest Rates Forecast: Will Rates Go Up?

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.

The Federal Reserve does not determine mortgage rates, and the central bank's choices do not have the same direct impact on mortgage rates as they have on other products such as savings accounts. The Fed does, however, determine borrowing costs for short-term loans in the United States by changing the federal funds rate. The federal funds rate can have an impact on 10-year Treasury bond yields, which are used to calculate most mortgage rates.

Essentially, the Fed does not set mortgage rates directly, but its policies can affect the financial markets and movers who do. Most analysts predict that mortgage rates will continue to rise given the inflation numbers continuing to increase. Since mortgage rates are tied closely to the performance of the 10-year Treasury market plus a margin to account for the additional riskiness of home lending. The long-term mortgage rates are expected to rise due to the overall turmoil in the world’s economy.

Let's take a look at the chronology of the Fed hiking its benchmark interest rate in 2022. It hiked its federal funds benchmark rate by 25 basis points in March 2022, to a range of 0.25% to 0.50%. The rate increase represented the Fed's first rate increase since 2018. The Federal Reserve announced in early May 2022 that it would boost the target range for the federal funds rate to between 0.75% and 1%.

In order to reduce the size of the Federal Reserve's balance sheet, the Fed declared that it will sell Treasury and mortgage-backed assets. In order to combat the sustained rise in inflation, the Fed raised the rate by 75 basis points, or 0.75%, in June 2022. This increase pushed the target rate range from 1.5% to 1.75%, marking the greatest single rate hike since 1994. In July, after the Consumer Price Index indicated annual inflation of 9.1%, the Fed raised interest rates by 0.75% to a target range of 2.25% – 2.5%.

Before becoming less hawkish and considering a pause in rate hikes, Fed officials have stated that they want to see several month-to-month inflation rates annualize to less than 3%. Treasury yields have jumped across the curve, with the two-year rate soaring as much as 21 basis points to about 3.78%, the highest since October 2007.

The expectation is that this will reduce inflation, but it will also likely raise interest rates for borrowers. In September, with inflation remaining persistently high, the Federal Reserve raised the target range for the federal funds rate by 0.75% to 3%-3.25%. The Federal Reserve also issued median predictions, indicating that the target rate is expected to be 4.4% by the end of 2022.

The Fed raised the federal funds rate by 75 bps to the 3%-3.25% range during its September meeting, the third straight three-quarter point increase, pushing borrowing costs to the highest since 2008 According to the interest rate predictions, the central bank believes that more rate hikes will be required to achieve its 2% inflation objective. In fact, many experts think that rates will rise into 2022 (at each of the Fed's remaining sessions), with the next expected increase occurring in November.

The Fed's remaining meetings are scheduled for November and December. High mortgage interest rates imply you pay more interest, which can lower your purchasing power because you can't borrow as much money. This is because less money will be paid toward the principal (the amount borrowed) and more money will be paid toward the interest. Higher interest rates may assist in reducing the housing demand that is now driving up prices.

If you're looking to buy a home, keep an eye on the local market and consider locking in your rate when you're ready to go. It's also important to remember that just because you qualify for a certain amount doesn't imply you should borrow the maximum. Spend some time calculating how much house you can afford, including monthly payments. Work with your lender to calculate your monthly mortgage payment based on different loan amounts and interest rates.

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.

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.

Mortgage Rate Predictions 2022 – 2033

Mortgage experts are split on which way mortgage rates will move in the coming week (Oct. 13-19). According to Bankrate's weekly poll, 60% believe rates will rise, 20% believe rates will fall, and 20% believe rates will remain unchanged. Inflation is still problematic, the Fed will continue to raise rates aggressively, and there is a growing supply of mortgage-backed bonds that must be absorbed as the Fed withdraws.

After rising sharply in the first few months of 2022, the 30-year fixed mortgage rate began to fluctuate in June, approaching 6 percent before stabilizing in the 5s. As of now, mortgage rates are moving above 6 percent. Federal Reserve policy has no direct effect on fixed mortgage rates, but for a time, the central bank's actions led to a decline in 10-year Treasury yields, which drive the movement of fixed mortgage rates. For September and beyond, analysts expect more rate volatility, with inflation one of many markers to watch.

Major mortgage and real estate market organizations differ in their short-term rate prognostications, although not by much. Fannie Mae, for instance, predicts the 30-year rate to average 5.1 percent by the end of this quarter versus a 5.5 percent average forecasted by Freddie Mac. And the Mortgage Bankers Association foresees a 5.3 percent average rate for the 30-year mortgage across the third quarter.

The Fed is battling inflation. With the pandemic's waning influence, inflation at 40-year highs, and the Fed predicting four more rises, interest rates might continue to rise in 2022. 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 by 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 some of the earlier mortgage interest rate predictions made for 2022.

• Realtor.com Chief Economist Danielle Hale: “For mortgage rates, we’re likely to see upward pressure with much less intensity. Mortgage rates are currently near 5.5%, and I expect them to hover between 5.5% and 6% between now and the end of 2022.”

• MBA Chief Economist Mike Fratantoni: Mortgage “rates may have already peaked and could stay between 5% and 5.5% through the remainder of 2022.”

• National Association of Realtors (NAR) Chief Economist Lawrence Yun: “Mortgage rates bouncing along near 6% is certain for the remainder of the year. They could go up even close to 7%, especially if oil and gas supply further lags and pushes up the critical energy prices during the winter heating season.”

• Zillow Vice President of Capital Markets Paul Thomas: “Mortgage rates are likely to be volatile in the near term as markets are pricing in the competing influences of high inflation and Federal Reserve rate hikes against increasing risks of economic slowdowns and a potential recession. Considering the current situation, we’re more likely to see higher rates by the end of the year than lower ones.”