It’s no secret that the mortgage industry is a fickle beast. After all, who among us could have predicted the ways the COVID-19 pandemic upturned the real estate sphere?

After two years of a highly unusual housing market, a clearer picture of 2022 is starting to take shape. While in many ways the new year may be more of the same, experts agree on a few emerging trends. Overall, here’s what we think mortgage loan originators can expect to see:

Slightly higher rates

Of course, lower interest rates have been a sizable driving force behind recent increases in demand. Over the past two years, buyers have benefited from the lowest mortgage rates of all time. What’s more, fluctuations both up and down have been relatively minor.

In the new year, however, rates are expected to slowly and steadily climb. Daryl Fairweather, Chief Economist for Redfin, predicts an increase from around 3% to 3.6% by the end of 2022. Lawrence Yun, Chief Economist for the National Association of REALTORS^Ⓡ agrees, but cites a potential 3.7% rate by year’s end. Experts attribute this growth to inflation, the pandemic’s lasting effects, and the Federal Reserve System cutting back on mortgage-backed securities.

While higher interest rates are likely, much will depend on developments in the COVID-19 pandemic. Either way, though, refinances and purchases may be more prudent sooner rather than later.

Limited affordability

Of course, rising interest rates amidst ever-increasing home prices will undoubtedly deter some potential buyers from homeownership. Affordability will remain top-of-mind for new and seasoned buyers alike, potentially breathing new life into more affordable suburban or rural neighborhoods, in particular.

It’s important to note, though, that rent prices are expected to rise as well. Danielle Hale, Chief Economist at Realtor.com, expects a staggering 7.1% increase in 2022. This figure may provide continued interest in homeownership, particularly among millennials, who may be weighing the pros and cons of renting versus owning.

Persistent demand

Despite these challenges, demand is expected to persist, although at a potentially lower pace. Millennials, who are now at prime first-time buyer age, are expected to continue driving competition even as supply slowly improves. This demographic made up more than one-third of purchases in the last year, and their momentum may slow but is unlikely to stall.

Sue Yannaccone, Chief Executive Officer and President of Realogy Franchise Group, also cites lifestyle changes as a driving force for sustained demand. Between remote work and hybrid schedules, first-time buyers are expected to uphold strong demand with Yun projecting only a 2% drop in home sales.

All in all, new year, new mortgage industry! Between rising interest rates and enduring demand, MLOs will likely have plenty on their plates come 2022.