Due to soaring mortgage rates and more aggressive Fed tactics, buyers flocked to the housing market in the early months of the year, pushing demand for home purchases forward in the spring. However, the inventory of homes for sale for sale continued to lag in previous years and, despite some seasonal increase, provided little relief to frantic buyers. Homebuyer competition and bidding wars have peaked again, and the share of homes selling above asking price hit the peak of last summer, with 6 in 10 homes selling above asking price. requested in March.

Although widely anticipated, the stock of homes for sale unfortunately does not look promising for 2022, especially given soaring mortgage rates and a general feeling of being “locked in” by existing homeowners. While we may see some increase in new listings in emigration markets (like those in the Northeast and North Midwest regions), markets that have seen strong buyer demand (like Mountain West and Sand States ) are unlikely to experience similar relief.

While soaring interest rates and lack of inventory are expected to have a dampening effect on demand, there are still many buyers who can afford the rising costs of home ownership and will therefore compete for limited properties.

Additionally, after a decline at the end of 2021, we continue to see high levels of investor activity in 2022. In March, investors accounted for 28% of single-family home purchases. Motivated by the continued rise in rents for single-family homes, investors were likely taking over these homes to turn them into rentals. the CoreLogic The single-family home rent index hit a new high in early 2022 and recorded a 13.1% annual increase in February.

Market considerations

Given competitive demand and historically weak supply, house price growth – which accelerated in 2022 – is expected to remain robust and continue to register a double-digit growth rate for the rest of the year. . The CoreLogic House Price Index forecast now projects that the average annual increase in the national index will be 17% in 2022, up from 15% in 2021. On the other hand, the reacceleration in house price growth housing, coupled with higher mortgage rates, will take a bite out of home sales activity. The previous forecast of a 1% rise in home sales for 2022 has been revised to a 3% decline.

Refinancing by collection

Rising mortgage rates will also continue to impact refinancing operations. Again, with mortgage rates much higher than expected for the year, refinance origination volume is expected to see a noticeable decline, perhaps more than 70% from 2021.

The incentive to refinance has been largely removed with rates above 5%, given that 90% of outstanding mortgages have a rate of 5% or less. Nonetheless, the share of borrowers looking to cash out will continue to grow. This is because homeowners have tapped into the record amount of home equity they have accumulated over the past few years of double-digit home price growth.

The share of inflows in total dollar origination volume has already reached the highest level since the late 1990s, with the last reading in March 2022 at 22%. At the pre-Great Recession peak of 2004, the volume share of outflows was 17.7%. As we noted earlier, borrowers who refinance are likely to have slightly lower average credit scores, as borrowers with Federal Housing Administration loans refinance into conventional loans with a loan-to-value ratio of 80% or less to eliminate the mortgage insurance premium.

Additionally, these borrowers will also have a longer average loan term to keep the monthly payment low. The availability of home equity will also likely lead to an increase in home equity line of credit (HELOC) loans, which will allow homeowners to borrow against the available equity in their homes without giving up the low mortgage rate.

Employment and income

Finally, the strong growth in employment and income has contributed to keeping new payment defaults at a very low level. The 30-day delinquency rate remains at its lowest in a generation, while foreclosure rates rose slightly in January with the end of foreclosure moratoriums and the CARES Act forbearance program. Still, at 0.24%, the foreclosure rate remains half the average rate seen in the decade before the Great Recession. Areas that could see an increase in distress activity are along the Gulf Coast and parts of the northeast.

The road ahead

Overall, 2022 will still be a good year for housing, although more difficult than expected, especially for potential buyers who are unable to afford the increase in monthly mortgage expenses due to rising prices. mortgage rates and house prices.

Summary of predictions:

1. The interest rate on 30-year fixed rate loans is expected to average 5% until the end of 2022.
2. Home sales will decline in 2022 from the 16-year high of 2021.
3. Single-family home price growth is expected to remain robust, averaging 17% for the year.
4. Fewer refinance loans, but with a higher share of disbursement and more HELOCs.
5. Loan delinquencies remain low, but with a slight increase in distressed sales.

This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.

To contact the editor responsible for this story:
Brena Nath at [email protected]