At least one economist says the Federal Reserve is already behind the inflation curve, and the mortgage industry should expect interest rate increases into 2023.
“Short-term interest rates will be pushed up by the Federal Reserve [in 2022], as the Fed announced,” writes Dr. Bill Conerly in Forbes. “They will raise rates in quarter-point increments three or four times this year. They will still be behind the curve, most likely, and will raise short rates more aggressively in 2023.”
Predicting future Fed moves isn’t easy — not even for the Fed itself. Last summer, the Federal Reserve said it wouldn’t raise rates at all until 2023. That proved to be untrue.
In a video news conference after their two-day meeting earlier this week, Federal Reserve Chairman Jerome Powell said his members are “of a mind” to raise interest rates in March,“assuming conditions are appropriate for doing so.” But what will happen to mortgage lending if the interest rate hikes continue into next year?
Conerly believes the strength of the housing market and tight supply of available homes will be enough to overcome the impact of rate hikes.
“The mortgage industry will find fewer homeowners refinancing their mortgages. The demand for houses, though, is probably strong enough that higher mortgage costs will have only a small effect, and that will impact pricing more than the number of new homes built and sold,” Conerly predicts.
At the beginning of the year, the Mortgage Bankers Association’s (MBA) predicted the average 30-year mortgage rate will reach 4% in 2022 and 4.3% in 2023 and 2024. That was before the Fed’s announcement this week.
Fannie Mae is predicting a decline in total home sales in 2022 of 1.2%, though they still see a 14.9%in new single-family home sales due to pent-up demand.
In what may be a sign of concern about a possible slowdown, United Wholesale Mortgage announced Wednesday it will credit borrowers up to $600 for appraisal costs through March 31, available on all primary purchases, including jumbos.
“As the #1 purchase lender in the country, we felt it was the right time to jump-start purchase season,” said Mat Ishbia, president and CEO at UWM.