Fannie Mae: Home Prices, Mortgage Rates Will Rise In 2022

Economists from Fannie Mae’s Economic and Strategic Research (ESR) group anticipate that mortgage rates and home prices will increase in 2022, according to the group’s October 2021 Forecast commentary.

The group cites inflation, tightening monetary policy, and continuing home stock shortages as drivers of higher prices in 2022. 

Fannie Mae’s October economic forecast predicts the 30-year fixed-rate mortgage will average 3.3% in 2022. It raised its prediction of 3.1% last month in anticipation of the Federal Reserve tapering its purchase of mortgage-backed securities, which is expected to start by the end of this year.

“While we still view the supply chain disruptions and, to a lesser extent, labor market tightness as largely transitory, we now expect both to last even longer than we’d previously forecast – and also likely longer than the Federal Reserve anticipated,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.

“Mortgage rates may rise in response to the tighter environment, but we expect the severe shortage of homes for sale to remain the primary driver of strong house price appreciation through at least 2022, limiting interest rate effects on home sales and home prices. Right now, we forecast mortgage rates to average 3.3 percent in 2022, which, though slightly higher than 2020 and 2021, by historical standards remains extremely low and supportive of mortgage demand and affordability.”

Though the Federal Reserve previously said they expected inflation to stay near 2%, they have since reversed course. 

“Inflation is elevated and will likely remain so in coming months before moderating,” Fed Chairman Jerome Powell said in a statement to the Senate Banking Committee.

When asked if the inflation problem is more significant than he previously thought, Powell acknowledged, “I think it’s fair to say that it is,” adding the supply-chain issues contributing to the problem “have not only not gotten better—they’ve actually gotten worse.”

Economists surveyed by the Wall Street Journal said that should inflation stay above 5% through December, it would be the longest stretch of inflation above 5% since 1991.

Annual inflation for 2021 is expected to be 5.7%, higher than the 5.4% it projected in September. 

Mortgage rates for this year should average 2.9%, Fannie’s ESR group predicts. Home prices are expected to increase 16.6% in 2021, 1.8% higher than September’s projections. For 2022, home price projections rose from 5.1% to 7.4%.

Home sales are projected to drop to 6.45 million in 2022, down from 6.77 million in 2021. Single-family mortgage originations are expected to remain flat for 2021, hovering around $4.3 trillion, but 2022 projections rose from $3.25 trillion to $3.30 trillion.