Housing and Interest Rate Forecast Through 2022

For today’s post, we’ll talk about the Fannie Mae housing and interest rate forecast through 2022. I’ve shared this in previous months, but there’s some interesting data coming across with what’s happening in the economy and the markets with COVID, the election, and everything. I just wanted to share this for this week’s video to point out a few key things.

The first category is total housing starts. This is interesting because housing starts are the number of new homes being built. You’ll see that they are forecasting a steady increase, 8.3% higher in 2021 versus 2020, and a 5.8% increase in 2022 versus 2021. Yes, this is an increase that could be accounted for by population growth and different things like this, and it tells me that it’s interesting that it’s not higher with the amount of demand that’s out there. This might have to do with supply chain disruptions, the ability of builders to get materials, to get labor, to find people to actually build these houses. In markets like Denver, especially, it’s surprising that these numbers aren’t larger. That being said, this is a nationwide forecast. These are nationwide averages, so that’s definitely something to keep in mind as we’re looking at this.

The next thing is median home price. They are forecasting a modest increase in home prices, $332,000 to $345,000. This is new homes next year, and $290,000 to $310,000 in existing home prices. Again, nationwide average and median home price, it means that’s the home price right in the middle. 50% of homes are selling above that price, 50% below that price. My humble opinion in markets like Denver where there’s such a high demand and very low supply, is that we’re likely to see larger increases than this.

Now let’s take a look at what they’re forecasting for mortgage rates. This, to me, is the most interesting thing. You’ll see here, they’re forecasting mortgage rates to stay pretty much level all the way through 2022. This is significant for a couple reasons. First of all, I agree with this because I think that it’s unlikely the fed is going to want to allow rates to go up with what’s happening with the economy, so that’s the first thing I wanted to point out. Secondly, this is significant because, yes, rates are going to stay low for people to take advantage of refinancing, but they’re not forecasting rates to go a lot lower. That means, if you’re sitting on the sidelines waiting to refinance for rates to go lower, you’re losing opportunity cost. Basically, you’re losing that savings that you might realize each month by not refinancing, waiting for a lower rate that might not come.

For example, let’s say you would save $200 a month off your mortgage payment by refinancing right now and you want to wait for rates to get lower. Well, according to this forecast, if it’s correct, rates may never get lower, so you’re going to wait 3 months, that’s going to cost you $600 to wait, 6 months, that’ll cost you $1,200 to wait, so you’re losing that benefit through waiting. My humble opinion, again, is to lock in rates now. They’re historically very low, the savings is there, and it makes sense to look at those numbers.

This also speaks to housing affordability. Housing is going to stay in that range where it’s affordable. Affordability indexes, even though home prices are up in places like Denver, are at a sustainable level. Affordability is still very good with rates at this level, meaning that the monthly payment that people are taking on compared to income in the area is relatively good right now.

Those are just a couple of the most interesting pieces of this report on the housing and economic forecast through 2022. If you would like me to send you a copy of this report, I’m happy to do that. Or just Google Fannie Mae monthly economic forecast and you can pull up both this one and then there’s a more broad economic forecast that they do. I hope that helps you guys out. Give me a call at 303-670-0137 or email baxterteam@fairwaymc.com if you have any questions mortgage related. I’m happy to answer your questions any time. We are definitely here for you. And you guys have a great rest of your day. Thanks for watching.