Shiller price index

Mortgage still hot


LOS ANGELES – Fierce competition, low mortgage rates and soaring prices that pushed mortgage borrowing to record levels last year are expected to drive lending even higher this year, experts say.

Banks loaned about $ 1.61 trillion for home purchases last year, up about 9% from 2020, according to the Mortgage Bankers Association. This exceeds the $ 1.51 trillion loaned at the height of the housing bubble in 2005, the highest on record since 1990.

Lenders gave 4.74 million loans to borrowers buying homes last year, up from 4.92 million in 2020, according to the association. Despite this, the dollar value of purchase loans rose last year as home prices rose, often because homebuyers were willing to pay well above the seller’s asking price to outbid. competing offers.

“Strong demand for housing, a persistent increase in demand for housing, limited supply, rising prices – this is what led to this record level of purchase last year,” said Mike Fratantoni, chief economist of the association.

The housing market strengthened during the pandemic as many Americans switched to working from home, which put additional living space at a premium. Steady job growth, a stock market at record highs, rising rents and expectations for higher mortgage rates have also boosted homebuyers, although soaring prices and a historically low supply of low-cost homes. selling have excluded many others.

Median U.S. home prices in October were nearly 20% higher than a year earlier, according to the most recent S&P CoreLogic Case-Shiller Home Price Index.

The housing market is expected to continue to sizzle this year, which is why the association predicts the dollar value of home purchase loans to hit a new high of $ 1.74 trillion.

While inventory for sale may end up being a bit better than in 2021 as home builders build more homes, that still won’t be enough to give buyers the upper hand, Fratantoni said.

“2022 is always going to be a sellers market,” he said. “There is more demand than supply, which is why we are very confident that prices will continue to rise.”

LESS PURCHASING POWER

Meanwhile, home buyers will likely have less purchasing power this year to deal with rising home prices.

The extraordinarily low mortgage rates that have helped boost demand from the housing market are expected to continue to rise in 2022 as the Federal Reserve phased out the monthly bond purchases it has made since the early days of the pandemic. The central bank has already signaled that it plans to start raising interest rates as early as this spring to curb the sharp rise in inflation.

The average 30-year fixed-rate benchmark mortgage rate remained around 3% in 2021. The association’s forecasts predict that the average rate will drop to 4% this year.

This is close to the forecasts of other housing economists. The National Association of Realtors predicts that the average rate will rise to 3.7% by the end of this year. Greg McBride, chief financial analyst at Bankrate, predicts rates will peak at 4% but end the year at 3.5%.

“It’s going to be a bit of a roller coaster ride,” McBride said. “The higher rates we expect in 2022 will not take the real estate market’s breath away, but it will significantly change the refinancing equation.”

Homeowners borrowed some $ 2.32 trillion in 2021 to refinance their mortgages, down about 12% from 2020, when refinancing hit an all-time high, according to the Mortgage Bankers Association. In total, mortgage refinancing in 2021 and 2020 amounted to nearly $ 5,000 billion.

The association predicts that mortgage refinancing will fall to $ 870 billion this year, the lowest since 2018’s $ 467 billion.

LAST MORTGAGE RATES

According to the latest data released Thursday by Freddie Mac, the 30-year fixed rate average climbed to 3.22% this week. It was 3.11% a week ago and a record 2.65% a year ago. This is the highest 30-year fixed average since May 2020.

Freddie Mac, the federally chartered mortgage investor, aggregates the rates of about 80 lenders across the country to establish weekly national averages.

The 15-year fixed rate average stands at 2.43% with an average of 0.6 point. It was 2.33% a week ago and 2.16% a year ago. The average of the five-year revisable rates remained at 2.41% with an average of 0.5 point. It was 2.75% a year ago.

“With little economic data during a slow holiday week, markets appear to be forecasting continued economic recovery, despite the spike in covid cases due to the omicron variant,” said Paul Thomas, vice president of markets of Zillow Capital. “Most indicators continue to point to inflationary pressures, with tight labor markets and challenges in resolving supply chain issues.”

When the Federal Reserve released the minutes of its December meeting this week, it made waves in financial markets. Shares fell after the Fed signaled it could be more assertive by pulling back its bond purchases, raising interest rates and selling its balance sheet over the next several months.

Officials said high inflation and a tight labor market could prompt them to raise the benchmark rate “earlier or at a faster rate than participants anticipated,” according to the minutes. Although the Fed does not set mortgage rates, its decisions can influence them.

Information for this article was provided by Alex Veiga of The Associated Press and Kathy Orton of the Washington Post.