This means that home shoppers who continue to search, will feel a strong sense of urgency to act quickly in the hopes that they may secure a lower rate.Įmployment and Income Remain High, Supporting Demand Despite Tighter Financial Conditions While higher costs have dampened homebuyer demand, knocking some households out of the hunt for a home entirely, consumers expect mortgage rates to continue to climb. For a home buyer financing 80% of the typical home purchase price, this is roughly an extra $600 per month. In combination with higher home prices, this has caused monthly mortgage payments to soar, by more than 50% relative to one year ago. Mortgage rates are currently more than 2 percentage points higher than this time one year ago. This shift is reverberating through the housing market and consumer decisions. Now, however, mortgage rates have already exceeded 5% for over a month. In December 2021, our call of 3.6% mortgage rates in 2022 was on the higher end of expectations.
Mortgage rates will likely continue to climb, but at a slower pace, as they’ve largely adjusted to anticipate the Fed’s hikes through the end of 2022. Once we hit a growth- and inflation-neutral short-term rate, likely in late 2022, we expect the Fed to pause and assess the impact of its actions on the economy before deciding whether to hold or pursue additional hikes. We expect that inflation will continue to ease as demand responds to tighter financial conditions, but remain high enough to pressure the Fed to continue moving short term rates rapidly to neutral. Because inflation does not respond immediately to tighter monetary conditions, it has continued to surge, hitting 8.6% in March before easing somewhat to 8.2% in April.
At its recent May meeting, the Fed made good on those expectations, raising the short-term rate by 50 basis points, the biggest hike in 22 years, and setting the groundwork for more large adjustments. The Fed followed through in March, and in addition to lifting the Fed funds rate, their economic projections signaled that more and/or larger rate hikes would be needed than expected in December. In the span of roughly two months, futures markets had re-priced a March hike from a longshot to near certainty. In its January 2022 meeting, the Fed signaled their plan to begin rate hikes at the March 2022 meeting, and markets responded. In the December 2021 Fed meeting, decision makers accelerated the planned end date of the Fed’s asset purchase program and raised expectations for short term rates by the end of 2022 to just shy of 1%, which would imply roughly three quarter point rate hikes in 2022.
7 years from now 2021 crack#
As we finalized our results in late 2021, the consensus on inflation being a largely transitory phenomenon that could be tamed with a garden-variety tightening cycle was just starting to crack as inflation accelerated from just over 5% in August to more than 7% by December.
7 years from now 2021 driver#
The change in financial conditions is the most dramatic driver of change in our revised outlook. ® 2022 Forecast for Key Housing Indicators Housing IndicatorĮxisting Home Median Sales Price AppreciationĪverage 5% throughout the year, 5.5% by end of yearĪverage 3.3% throughout the year, 3.6% by end of yearĪ Changing Economic Landscape Inflation is High and Monetary Policy Pivots The growth is driven by a combination of more sellers and a slowing home sales pace. The number of homes for sale grows more than originally projected.While we now forecast a notable step down from 2021, home sales on par with these projections would mean that 2022 sales are the 2nd highest tally since 2007, trailing only 2021. Home sales slow, shifting our original 2022 growth expectations to a decline of 6.7%.Going forward, home price growth cools, but it has remained hotter for longer than originally anticipated leading to an upwardly revised projection of 6.6% home price growth for 2022.Mortgage rates have been revised upward to reflect the major shift in monetary policy and financial conditions over the last 6 months in the second half of 2022, we expect a continued climb at a more modest pace, which means that rates hit 5.5% by year-end.
7 years from now 2021 update#
® National Housing Forecast Update 2022: A Moderating Housing Market Means More Options for Home Shoppers
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