Mortgage industry outlook: what awaits homebuyers in 2022?

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As we look to 2022, it’s also important to take a look in the reviewing mirror for context on the trends that will continue to impact the mortgage industry in the future. Of course, a year ago our world was still grappling with the ongoing pandemic, and we were all trying to figure out what the “new normal” might be in our daily lives. As we learned more and began to see progress in the fight against this pervasive virus, there were signs of a return to normal: being able to see friends and family again, attending concerts at school, watching major sporting events with fans in the stands, and socializing with friends over the holidays. However, just when we seemed to be rounding the corner, new variants or challenges have appeared – reminders that we still have challenges to overcome before we can fully move forward.


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Why is the pandemic having such an impact on the mortgage industry? Simply put, this is driving a degree of economic uncertainty, which has continued to keep rates low over the past year – and these factors have helped spur significant refinancing activity, as well as strong demand for ‘purchase.

Will the pandemic, which has now lasted two years, continue to influence real estate credit and finance? Let’s take a look at some of our expectations and the impacts they will have on the housing industry as we approach 2022.

Economic factors

Tony Weick is the head of Bell Bank’s mortgage division.

A year ago, many new budget plans and strategies – implemented by governments around the world to help workers, families, businesses and economies – were having an impact in many areas. In the area of ​​lending, the Federal Reserve had cut interest rates and, more importantly, provided substantial liquidity through a variety of programs intended to help calm markets and provide needed support to millions of citizens. and companies in difficulty.

At the start of the pandemic, the central bank dramatically cut the fed funds rate to near zero and began aggressively investing in bond markets, which had a major influence in driving rates down to historic lows. . Although fed funds rates do not have a direct impact on mortgage rates (which are more closely tied to the 10-year Treasury yield), the two generally trend in the same direction. However, the liquidity the Fed brought to bond markets had a direct impact on rates, keeping them near historic lows for most of the year. The Fed pursued these strategies for most of 2021 before finally changing course with its quantitative easing towards the end of the year.

Over the past few months, the Fed has begun to implement policy changes — such as limiting asset purchases that impact bond markets — and is now discussing upcoming rate hikes, which are expected to begin. in mid-2022. The expiration of many strategies around the world intended to provide assistance to people and businesses is also impacting markets and the economy. With concerns surrounding rising inflation and equity markets showing continued strength, there is strong belief that central banks around the world will continue to pull back to these historic milestones at the start of 22, which should put pressure rising on rates around the world.

What does this mean for the mortgage industry?

The first noticeable impact should be on interest rates. After an extended period of mortgage rates setting new highs or approaching historic lows, all expectations point to a continuation of the recent upward trend in rates. While 30-year mortgage rates have been hovering slightly below or just above the 3% mark for some time now, forecasts to 2022 show a slow but moderate increase going forward, eventually reaching the 4% range by the end of 2022.

As rates continue to rise, of course, they have an impact on overall mortgage activity. Refinances are expected to drop significantly year over year as millions of homeowners have already taken advantage of lower rates in recent years. However, due to the significant appreciation in value over the same period, owners continue to find excellent opportunities to tap into this equity via cash refinances, at rates still considered very low on the based on historical averages. And even though rates will have risen from historic lows, they should continue to have a positive influence on the buy market at their expected levels, with the sector again expecting a slight increase in total activity. purchase in the coming year.

Housing inventory, appraisal and credit

A trend over the past few years has been a lack of housing inventory in most price ranges to support market demands – and no doubt the pandemic has made this problem even more serious. A year ago, there was a sharp drop in the number of homes being put up for sale, and growing economic stability also led to strong buying demand. This demand, combined with a drop in listings, led to another year of very strong price appreciation. Sellers receiving multiple offers remained the norm.

As 2021 unfolded, buying demand remained very strong, and as the market had started in a hole due to a lack of inventory, it proved very difficult to make any major headway to come back. to what is considered a healthy and balanced level. As we look forward to 22, we believe we will begin to see a slight movement towards more balance. However, history shows that trying to “catch up” usually takes years, not months. While we continue to see this as a factor moving forward, recent signs point to at least a softening of the previously seen feverish levels across most price ranges.

Any easing of housing availability will help in the lower price brackets, where the lack of inventory has had a severe impact on more affordable neighborhoods as well as first-time home buyers – an ever-growing segment of the housing market. housing which traditionally contributes to generating opportunities, as well as the overall stability of the market. Lack of inventory, along with historically low rates, have been the main drivers of the rapid appreciation seen over the past two years. While there are many positives associated with property value appreciation, when it happens too quickly, affordability is a real concern. After double-digit increases in property values ​​hitting teenagers last year, experts now expect those increases to slow. With inventory levels rising and rates rising, we should see property value appreciation come to a more reasonable level of around 5% over the coming year.

Affordability remains a challenge for many buyers, and as home prices continue to rise, the amount needed to make down payments and pay monthly mortgage payments poses an even greater challenge to homeownership. . Hopefully local and national programs (including those developed and implemented by Fannie Mae, Freddie Mac, FHA/VA and private companies) will help more shoppers overcome these barriers.

At the start of 2020, we started to see a temporary credit crunch associated with the uncertainties of the pandemic. These policies are now retired. We anticipate continued, small but appropriate easing of credit requirements to support a healthy funding environment and overcome some of the funding challenges for market segments that are still struggling.

To advance

As we look forward to 2022, we are excited about the future and there is cause for optimism. Based on economic forecasts, although rates are expected to rise, it looks like they will remain very attractive (especially considering historical levels), providing excellent financing options for buyers and for those looking to refinance and withdraw equity from their homes. Home appreciation is expected to continue, albeit at a more modest and healthier pace for the majority of the country, and the industry continues to provide creative solutions to support today’s homeowners.

Using new and improved technology, coupled with old-fashioned professionalism, competitiveness and customer service, we expect great things for Bell, our business partners and our customers in 2022 as we apply the values of our business of family, service and giving back to communities. we serve.

If you are considering buying a new home, vacation home or investment property, or evaluating your mortgage on an existing property, Bell would like the opportunity to help you determine what is in your best interest. As always, we welcome your business and referrals and would be honored to serve you.

Tony Weick is the head of Bell Bank’s mortgage division.

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