The pandemic ignited a home-buying frenzy as the decade-long housing shortage converged with historically-low mortgage rates, shifting workplace dynamics and new opportunities for young buyers to pursue their first homes. The housing market for 2022 is expected to be a whirlwind.
Home sales are expected to increase another 6.6% and home prices to rise another 2.9% on top of 2021 highs. A gradual uptick in mortgage rates will make affordability a top consideration for home buyers, especially the 45 million Millennials aged 26 to 35 who are at prime first-time home buyer age. Demand from these young households will keep the market competitive and fast-paced despite a small uptick in housing inventory as builders continue to ramp up production, increasing single-family starts by 5% in 2022.
Although affordability challenges will come from rising prices and mortgage rates, rising rents, which are projected to increase 7.1% will be a strong motivator for many hopeful first-time buyers. On top of this, all home shoppers will have some advantages that stem from a competitive jobs market. Incomes are projected to increase by 3.3% and with many employers looking to attract and retain talent without impacting costs, we expect workplace flexibility will continue. This should free-up potential home buyers to broaden their search parameters to include the suburbs and in some cases even completely new, less pricey metro areas.
CHANGES IN LOAN LIMITS
Double-digit home price increases are great news for homeowners who have more equity as 2021 comes to a close. While buyers complain when prices spike, a side impact of higher prices is that they mean the limits for conforming mortgages and for FHA loans will also be higher. Borrowers, therefore, can avoid needing a jumbo loan to buy property.
Loan limits for conforming loans acquired by Fannie Mae and Freddie Mac, which are reset annually, increased this year.
CONFORMING LOANS
A conforming loan is a mortgage that meets the dollar limits set by the Federal Housing Finance Agency (FHFA) and the funding criteria of Freddie Mac and Fannie Mae. For borrowers with excellent credit, conforming loans are advantageous due to their low interest rates.
A conforming loan is a mortgage with terms and conditions that meet the funding criteria of Fannie Mae and Freddie Mac.
Conforming loans cannot exceed a certain dollar limit, which changes from year to year. In 2022, the limit is $647,200 for most parts of the U.S. but is higher in some more expensive areas.1
Conforming loans typically offer lower interest rates than other types of mortgages.
Lenders prefer to issue conforming loans because they can be packaged and sold in the secondary mortgage market.
2021 CONFORMING LOAN LIMIT: $548,250
2022 CONFORMING LOAN LIMIT: $647,200
THAT’S A $98,950 INCREASE IN LOAN LIMIT
FHA LOAN LIMITS
2021 FHA LOAN LIMIT: $356,362
2022 FHA LOAN LIMIT: $420,680
THAT’S AN INCREASE OF $64,318 IN LOAN LIMIT
NON-CONFORMING LOANS
A nonconforming mortgage is a mortgage that does not meet the guidelines of government-sponsored enterprises (GSE) such as Fannie Mae and Freddie Mac and, therefore, cannot be sold to them. GSE guidelines consist of a maximum loan amount, suitable properties, down payment requirements, and credit requirements, among other factors.
A nonconforming mortgage is a home loan that does not adhere to government-sponsored enterprises (GSE) guidelines and, therefore, cannot be resold to agencies such as Fannie Mae or Freddie Mac.
These loans often carry higher interest rates than conforming mortgages.
Mortgages that exceed the conforming loan limit are classified as nonconforming, and are called jumbo mortgages.
Other than the loan size, mortgages may become nonconforming based on a borrower’s loan-to-value ratio (down payment size), debt-to-income ratio, credit score and history, and documentation requirements.
Nonconforming mortgages are not bad loans in the sense that they are risky or overly complex. Financial institutions dislike them because they do not conform to GSE guidelines and, as a result, are harder to sell. For this reason, banks will usually command a higher interest rate on a nonconforming loan.
In 2022, a non-conforming loan (a.k.a Jumbo Loan) is any loan amount that is over the $647,200 limit of the conforming loan.
MORTGAGE RATES FORECAST
2021 was a year of records: The average 30-year fixed mortgage rate reached its all-time record-low of 2.65%, and inflation hit a 39-year high.
Now there’s only one place left for mortgage rates to go, according to experts, and that is up. In 2021, the average 30-year fixed mortgage rate rose roughly 0.5%. Most experts are predicting 2022 mortgage rates to rise a similar amount.
The majority of economists and housing marketing analysts we talked to believe mortgage interest rates will gradually drift higher as the year progresses. But there was not a clear consensus on how much and when. The possibility of new COVID-19 variants, such as Omicron, looms as a threat to our public and economic health and could stall economic progress.
Adding to the potential upward pressure for mortgage rates is the recent Federal Reserve announcement to speed up the unwinding of the bond market and plans to raise short-term interest rates three times in 2022. Both of these actions are expected to help rates tick higher.
One clear takeaway: Although rates are likely to rise next year, borrowers still have access to favorable interest rates for the foreseeable future. Mortgage and refinance rates in the 3% range are still lower than almost any other time in mortgage rate history.
OMICRON AND OTHER COVID-19 VARIANTS
The impact COVID-19, and potential variants have on mortgage rates is likely to be less extreme in 2022 than in previous years.
When the initial wave of COVID-19, and subsequent lockdowns hit the U.S. we saw mortgage rates tumble. Subsequent surges in COVID cases haven’t had as much of a negative impact on the economy as the initial wave. While there is a level of uncertainty surrounding the pandemic, we have more tools than before to navigate it. New variants will have a smaller impact on actual economic activity, but can still influence people’s expectations.
Winning Mortgage Strategies for 2022 and Beyond
Heading into 2022, it’s looking like we’ll have a strong spring homebuying season. Buyers should prepare for another seller’s market this year, albeit slightly less intense than what they faced in 2021. Home prices are forecast to continue increasing, but at a slower pace.
For homeowners who haven’t refinanced in recent years, rising rates could cut into the potential savings from a rate and term refinance. However, rapidly appreciating home values unlock the possibility to complete a cash-out refinance. With a cash-out refinance you could pay off high-interest debt or affordably finance home renovations. Increased home values may even give you a chance to get rid of private mortgage insurance (PMI) sooner than expected.
Get the Best Mortgage Rate for You
The most important step you can take to ensure you’re getting the absolute best mortgage rate is to shop around. Mortgage rates aren’t set by a single entity, and vary from one lender to the next. One study found that the difference between the highest and lowest mortgage rates offered among lenders was 0.75%. That means getting loan offers from multiple lenders could more than offset the rate increase projected in 2022 by some experts.
As you prepare to purchase a home or refinance your existing mortgage, you’ll want to pay close attention to your finances. Your personal situation also heavily influences the rate you’re eligible for. Take the time to build your credit score by paying your bills on time and paying down debt, especially revolving debt, such as credit card debt. If you’re buying a home, saving up for a bigger down payment will reduce your initial loan-to-value ratio, which can also lower your interest rate.
Properly Prepare to Buy a Home
Even if homes aren’t selling as fast as they did in 2021, homebuyers who are prepared to move quickly will have an advantage. Start by getting preapproved for a mortgage and determining your homebuying budget. This will help you narrow down the types of properties you can afford and hone in on where you want to live. Getting preapproved can also help you identify potential hangups in the mortgage underwriting process.
Part of setting yourself up for success when buying a home is working with the right real estate agent and lender. Find an agent that you connect with who also has experience working in the areas where you want to live. Real estate markets can be hyper local, and an agent who works in that area can give you a leg up on the competition when it comes to putting in an offer that conforms to the local norms. When choosing a lender, find someone who has experience dealing with the types of home loans that you are considering.
SHOULD YOU REFINANCE YOUR MORTGAGE
Even with mortgage rates on the rise, plenty of homeowners can still improve their finances by refinancing — albeit far fewer than just weeks ago. At current mortgage rates, 5.9 million mortgage holders could lower their interest rate by at least 0.75 percentage points and are well-qualified to do so. That's down from 11 million borrowers at the end of December and from a high of nearly 20 million in 2020, according to mortgage data provider Black Knight.
After hovering just above 3% through December, mortgage rates have jumped by nearly half a percentage point in the first three weeks of January, hitting 3.55% this week. That's the highest average rate since March 2020.
Despite the rate increases, the millions of homeowners who still stand to benefit can save a lot of money. These homeowners could save an aggregate of close to $1.6 billion per month. That works out to average monthly savings of $275 and annual savings of $3,300 per borrower. Over 1 million of these homeowners could save at least $400 per month, while 661,000 could save $500 per month or more.
The key to whether to refinance or not will be to compare the monthly savings provided against the costs involved in obtaining a new home loan. With the amount of potential savings involved, it makes sense to at least run the numbers and find out whether a refi is the best option.
A good rule of thumb is: It could benefit you if you can refinance into a rate that is at least 0.75% to 1% lower than your current rate. Whether you choose to refinance or not, depends on much more than just the refinance rate of your new loan. Consider your financial goals and how refinancing may, or may not, help you reach those goals. When you refinance there are upfront fees that can be 3% to 6% of the loan balance, that’s thousands of dollars for a typical home loan. Even if you can secure a lower rate, the fees you pay may outweigh any potential savings.
If a homeowner was three years into paying a $300,000 loan at 4.25%, there would be roughly $283,723 left on the loan, according to the NextAdvisor mortgage calculator. Here’s what that borrower could save if they refinanced into a new 30-year mortgage with an interest rate that is 0.75% lower.
However, reducing your monthly payment or the interest you owe aren’t the only reasons to refinance your mortgage. You may want to pay off your mortgage more quickly, and a short-term 15-year mortgage could help you accomplish that.
A cash-out refinance could help you fund other investments or home repairs, even though you would increase the size of your loan. So it’s important to understand your goals and all of the options available to you for achieving them.
MORTGAGE RELIEF PROGRAMS
Although Congress has wound down much of its Covid-era stimulus, there are still mortgage relief programs available to homeowners who need them. Mortgage relief can come in many forms. Whether you need a lower rate and payment or a break from making payments altogether, there are options.
If you’ve had a temporary job loss or reduction in income, it can be hard to keep up with mortgage payments — especially with an above-market mortgage rate that’s keeping your payments artificially high. Luckily, there are mortgage relief options that can help. The right one for you will depend on your current financial situation.
Homeowner relief options in 2022 include:
Refinance to a lower interest rate and payment
Use a Streamline Refinance (no appraisal required)
Ask for loan forbearance to pause your mortgage payments
Talk to your mortgage servicer about a loan modification
Currently, there’s no Congress mortgage stimulus program. But homeowners have plenty of alternatives. Many lenders are offering forbearance for as long as Covid is considered a National Emergency. And more than 7 million homeowners are still eligible to refinance despite rising rates.
So explore your options. If you’re not sure where to begin, start by reaching out to your mortgage loan servicer. (This is the company to which you make payments and its name will be listed on your latest mortgage statement.) Your servicer will help you understand your choices and determine which mortgage relief path is right for you.
MORTGAGE RELIEF PROGRAMS FAQ
Is there really a mortgage refinance relief program?
Two mortgage relief programs — HIRO and FMERR — have been put on hold because homeowners currently have so much equity that there’s little need for relief refinancing. However, if you do need mortgage assistance, you still have options. Some Congress mortgage stimulus programs enacted during Covid, such as forbearance, are still available. And homeowners with FHA, VA, or USDA loans can often refinance a high-LTV loan using Streamline Refi programs backed by the federal government.
Is there a government mortgage relief program?
The CARES Act and subsequent American Rescue Plan have provided mortgage relief during the Covid-19 pandemic. These programs do not refinance your mortgage but let you postpone repayment while keeping your loan active. The CARES Act also created a temporary moratorium on foreclosures and renter evictions.
Does Biden have a mortgage stimulus program?
Biden has proposed several stimulus programs to help with homeownership costs. In terms of mortgage relief, he recently enacted a measure to provide mortgage assistance to homeowners with federally backed FHA, VA, and USDA loans. Under this program, qualified borrowers can modify their mortgages to get a lower interest rate and potentially reduce their loan payments by up to 25 percent. Contact your mortgage servicer to learn whether you’re eligible for a loan modification.
Is the Freddie Mac Enhanced Relief program legit?
The Freddie Mac Enhanced Relief Refinance (FMERR) is currently on pause due to a low volume of applicants. FMERR was meant to help homeowners refinance with very little home equity. But, due to rising home values, many U.S. homeowners have enough equity to refinance without needing a special, high-LTV program.
Is the HARP program still available?
No, the HARP program is no longer available. HARP, the Home Affordable Refinance Program, expired in 2018. You can no longer apply or be accepted for this mortgage relief program.
Can the VA help with mortgage payments?
Yes, the VA can help veterans and service members who are struggling to make their mortgage payments. The association provides housing counselors who will help you figure out the right course of action and work with your mortgage servicer to set your payment plan back on track. The VA can help with mortgage payment issues even if your current mortgage is not backed by the Department of Veterans Affairs.
FLORIDA QUARTERLY REVIEW
Statewide closed sales of existing single-family homes totaled 350,516 at the end of 2021, up 12.9% compared to the 2020 year-end level, according to data from Florida Realtors.
For the 4th quarter of 2021, Florida single-family homes showed reduced sales activity when compared to last year. This is mostly due to the unprecedented low inventory of available homes and to a lesser extent the rapidly rising prices. For the near future, I don’t see the inventory rising by any significant amount. This should continue to depress real estate sales volume for a while.
Statewide closed sales of existing single-family homes totaled 350,516 at the end of 2021, up 12.9% compared to the 2020 year-end level, according to data from Florida Realtors’ research department in partnership with local Realtor boards/associations. Closed sales may occur from 30- to 90-plus days after sales contracts are written.
The statewide median sales price for single-family existing homes at year’s end was $348,000, up 20% from the previous year. The median is the midpoint; half the homes sold for more, half for less. New pending sales for existing single-family homes rose 5.7% at the end of 2021 compared to the previous year, while new listings for single-family homes were up 7.1% from a year ago.
Looking at Florida’s year-to-year comparison for sales of condo-townhouses, a total of 160,177 units sold statewide in 2021, up 34.2% over 2020. The statewide median price for condo-townhouse properties at the end of the year was $252,000, up 17.2% from the previous year. New pending sales for condo-townhouse units for the end of 2021 increased 29.2% compared to a year ago, while new listings for condo-townhouses rose 5.5% from year-end 2020.
Statewide, the number of cash sales doubled year-over-year in both property type categories at the end of 2021, up 53.2% for single-family existing homes and 50.2% for condo and townhouse units.
According to Florida Realtors’ data, at the end of 2021, in December 2021 and also for 4Q 2021, inventory (active listings) for single-family homes stood at a 1.0-months’ supply, while inventory for condo-townhouse properties was at a 1.3-months’ supply.
2021 Q4 Market Details for SINGLE FAMILY HOMES
2021 Yearly Market Details for SINGLE FAMILY HOMES
The IDEA Club
Scott Pritchett
BLUE EAGLE MORTGAGE
Whether you’re buying, selling, refinancing, or building your dream home, you have a lot riding on your loan officer. Since market conditions and mortgage programs change frequently, you need to make sure you’re dealing with a top professional who is able to give you quick and accurate financial advice. As an experienced mortgage broker, Scott has the knowledge and expertise you need to explore the many financing options available.
“I’m a mortgage broker with more than 22 years of experience in various areas of banking & finance. My customers choose to work with me because I’m trustworthy, plain spoken, and responsive. I use my broad banking and finance background to overcome hurdles and help my clients get the best possible mortgage for their individual needs. As a husband and father of three, I understand the importance of owning a safe and affordable home, and that’s why I work so hard to see my clients achieve the same dream. Call me today to see how I can help you finance your dream home. 407-765-1170”
