CoreLogic's Nothaft Predicts Mortgage Rates Will 'Slowly Rise' in 2022

Mortgage rates are heading higher, but not by much, according to a new forecast by Frank Nothaft, chief economist of CoreLogic.

The Federal Reserve’s wind-down of its pandemic-era bond-purchasing program likely will push the annual average U.S. rate for a 30-year fixed mortgage to 3.4% next year from 2.9% in 2021, Nothaft said in a forecast on Friday. New supply from homebuilders probably will ease a shortage of listing inventory and likely push home sales to a 16-year high, he said.

“With the Federal Reserve gradually tapering its supportive monetary policy, mortgage rates should slowly rise in the coming year,” Nothaft said. “With more supply from new construction and existing owners relocating, home sales are expected to rise to the largest number since 2006.”

Higher mortgage rates will slow the pace of home-price increases, Nothaft said. Lenders qualify borrowers by comparing the monthly mortgage bill to their incomes, and higher interest rates mean most people will qualify for smaller mortgages.

Higher rates will knock some people out of the market entirely, he said. That means fewer people competing for the limit supply of homes on the market, said Nothaft, the former chief economist of Freddie Mac.

“With less demand, we expect homes listed for sale will be on the market a bit longer with fewer competing bidders, which should moderate price growth,” Nothaft said.

Home prices likely will increase 6% in 2022, compared with 15% this year, he said. The annual average home price gain was 5% between 2010 and 2020, Nothaft said.

Mortgage originations for home purchases likely will rise, Nothaft said. However, refinancings are expected to decline as fewer people are able to secure a lower rate than their existing mortgage, he said.

One exception will be so-called cash-out refinancings, in which homeowners secure a new mortgage with a bigger balance and receive a check at closing, he said.

That money can be used to renovate homes, pay down debt, fund college expenses, or buy consumer goods such as appliances or cars.

"While we expect home-purchase originations to rise, the higher mortgage rates will reduce refinance originations and alter its composition," said Nothaft. "Refinance originations will likely have a much larger cash-out share in 2022 with slightly lower average credit scores and lengthening of the average loan term."