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GSE Forecast: Rise in Rates to Temper Housing Demand

Freddie Mac has predicted that the single-family housing market will remain stable in 2022, although mortgage rates are expected to increase. A new Quarterly Forecast released by Chief Economist Sam Khater estimates that rising rates will lead to moderation in homebuyer demand, slightly slowing down home price growth.

“As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper. However, the combination of a large number of entry-level homebuyers facing a shortage of entry-level inventory of homes for sale should keep the housing market competitive,” said Khater. “In 2022, we expect purchase originations to grow from $1.9 trillion in 2021, to $2.1 trillion in 2022, while refinance activity is anticipated to decrease from $2.7 trillion in 2021 to $1.2 trillion in 2022.”

Specific findings include:

  • The average 30-year fixed-rate mortgage (FRM) is expected to hit 3.6% in 2022, and 3.9% in 2023. In 2021, the 30-year FRM averaged 3.0%.
  • House price growth is expected to be 6.2% in 2022, slowing to 2.5% in 2023. House price growth was 15.9% in 2021.
  • Home sales are expected to be 6.9 million in 2022, increasing to 7.0 million in 2023. Home sales were 6.9 million in 2021.
  • Home purchase mortgage originations are expected to increase from 1.9 trillion in 2021 to $2.1 trillion in 2022 and $2.2 trillion in 2023.
  • Refinance originations are expected to continue to soften, declining from $2.7 trillion in 2021 to $1.2 trillion in 2022 and $930 billion in 2023.
  • Overall, annual mortgage origination levels are expected to be $3.3 trillion in 2022 and $3.1 trillion 2023, down from $4.7 trillion in 2021.

The labor market has continued to recover from the effects of the pandemic, with the unemployment rate hitting 3.9% in December 2021. To date, job openings remain high at 10.6 million, non-farm payrolls are down 3.6 million from the pre-pandemic levels, showing there is still room for improvement in employment.

The Forecast notes that demand for housing continues to remain stable, due to low mortgage rates, and a large pool of first-time homebuyers.

Click here to view the full Freddie Mac Quarterly Forecast for Q1 of 2022.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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