Fierce competition, lower mortgage rates and higher prices that helped drive mortgage borrowing to record levels last year, are expected to drive up lending this year, experts say.
The Mortgage Bankers Association expects the dollar value of home loans to buy to rise to a new high of $1.74 trillion this year after bankers lent an estimated $1.61 trillion last year, up about 9% from 2020, according to the Mortgage Bankers Association. Last year lending topped $1.51 trillion at the height of the housing bubble in 2005, the highest on record going back to 1990.
Lenders issued 4.74 million loans to home-purchasing borrowers last year, down from 4.92 million in 2020, according to the MBA. However, the dollar value of purchase loans rose last year as home prices rose, often when homebuyers agreed to pay much higher than the seller’s asking price to bid on competing offers.
“Strong housing demand, ever-increasing housing demand, constrained supply, and increasing prices — that’s what led to the record buying level this past year,” said Mike Fratantoni, MBA chief economist.
The housing market has boosted during the pandemic as many Americans have moved to work at home, bringing extra living space to a high. 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.
Median home prices in the United States in October were nearly 20% higher than the previous year, according to the latest S&P CoreLogic Case-Shiller Home Price Index. 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 will still be 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 begin 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 around 3% in 2021. The MBA forecast calls for that average rate to rise to 4% 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% by the end of this year. Greg McBride, chief financial analyst at Bankrate, expects rates to peak at 4%, but to finish the year at 3.5%.
“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% from 2020, when refinancing hit a record high, according to the MBA. Combined, mortgage refinancing in 2021 and 2020 totaled nearly $5 trillion.
The MBA predicts that mortgage refinancing will fall to $870 billion this year, the lowest level since 2018 of $467 billion.