American buyers took in an estimated $1.61 trillion to purchase homes in 2021, which is an increase of about 9 percent from 2020, according to the Mortgage Bankers Association. In 2022, experts expect lending to be higher due to high competition, exorbitant prices and low mortgage rates.
Bank loans of $1.61 trillion to buy homes last year exceeded the $1.51 trillion they lent during the housing bubble in 2005, which was the highest number recorded in 1990. The number of loans granted to homebuyers actually fell from 4.92 million in 2020 to the number of loans granted to homebuyers actually fell from 4.92 million in 2020 to the highest number on record, the MBA said. That’s 4.74 million in 2021, but the size of those loans increased in 2021.
This was often because buyers paid more than needed home prices to beat other offers in the market where demand exceeded supply.
“Strong housing demand, ever-increasing housing demand, restricted supply, and an increase in prices — that’s what led to the record buying level this past year,” said Mike Fratantoni, MBA chief economist.
In October, median home prices in the United States were nearly 20 percent higher than the previous year, according to the latest S&P CoreLogic Case-Shiller home price index. The rise has been among the widespread effects of the COVID-19 pandemic, leading many Americans to begin desiring space homes as they transition to remote work.
Steady growth in jobs, the stock market at an all-time high, rising rents and expectations of higher mortgage rates have spurred homebuyers, even with insanely high, historically low prices for homes for sale leading to many more homes closing.
The housing market is expected to continue to boom this year, which is why MBAs expect the value of home-buying loans in dollars to rise to a new high of $1.74 trillion.
Fratantoni said that while selling stock may be a little better than it was in 2021 as homebuilders outfit more homes, it won’t be enough to give buyers the upper hand.
“2022 is still a seller’s market,” he said. “There is more demand than supply, which is why we are very confident that prices will continue to rise.”
Meanwhile, homebuyers will likely have less purchasing power this year to deal with rising home prices.
The ultra-low mortgage rates that helped intensify demand in the housing market are expected to continue to rise in 2022 as the Federal Reserve dries up the monthly bond purchases it has been making since the early days of the pandemic. The central bank has already indicated that it expects to start raising interest rates as early as this spring to curb sharply rising inflation.
The average rate on a standard 30-year fixed-rate mortgage has held steady at about 3 percent in 2021. The MBA’s forecast calls for that average rate to rise to 4 percent this year.
This is close to expectations of other housing economists. The National Association of Realtors expects the average rate to rise to 3.7 percent by the end of this year. Greg McBride, chief financial analyst at Bankrate, expects rates to peak at 4 per cent, but end the year at 3.5 per cent.
“It would be like riding a roller coaster,” McBride said. “The high rates we expect in 2022 won’t blow the housing market winds out, but they will change the refinancing equation dramatically.”
Homeowners borrowed about $2.32 trillion in 2021 to refinance their mortgage, down about 12 percent from 2020, when refinancing hit a record high, according to the MBA. Combined, mortgage refinancing in 2021 and 2020 amounted to nearly $5 trillion.
The MBA predicts that mortgage refinancing will fall to $870 billion this year, the lowest level since 2018 of $467 billion.
The Associated Press contributed to this report.