December is a magical time of the year, one reserved for togetherness, goodwill towards all, and a healthy dose of seasonal cheer. But come this holiday season, it’s looking like the gift that keeps on giving won’t have anything to do with reliable finances or an ultra-low priced housing market because mortgage rates are set to see a moderate change over coming days.

End of the Year Recap

Over this last year, the market has been a strange thing to behold. Unlike once upon a time where it seemed like things would continue skyrocketing until homeownership was a relic of the past, mortgage rates throughout 2021 have seen a great deal of fluctuation.

Starting in January, rates were at a record low, with 30-year fixed mortgage rates hovering around 2.65% within the month’s first week. By the tail end of March and early April, we were already back up around 3.2%, a percentage that bounced up and down over the following days until eventually settling back down around 3.1% in mid-November. 

As evidenced, these shifts have been by no means earthshattering. Instead, they’ve been small and gradual throughout 2021, modest on both paper and in real-world effect – for good reason, too. Regardless of all the documented market vacillation, these mortgage rates are still meager when viewed through a historical lens.

Just a decade ago, 30-year fixed mortgage rates were nearly 5%, and ten years before that? We were firmly at 8%, thinking we were lucky we weren’t saddled with the ridiculously outrageous 18 of the mid-80s. In other words, we’ve witnessed far starker and more distressing shifts in the past.

A couple of points here and there is nothing in the grand scheme of things. 2021 has still been overwhelmingly good for borrowers. It’s why housing is positively booming, and first-time buyers aren’t left scrabbling like they might’ve been only years ago. Now the main question is: will this trend continue from here on out?

December Mortgage Rate Forecast

Merely a couple of weeks ago, most of us would probably be inclined to say “yes,” but things are looking a little murky right now. Wondering why? This is primarily caused by three main contributors: inflation, economic recovery, and changes to federal policy.

Simply put, we are not in the dire straits that we were within recent memory. Our country is not flailing around in a constant downward spiral like many of us remember during the Great Recession, and our economy has been adjusting to post-2020 life surprisingly adeptly. We’ve hit a 30-year high rate of inflation, retail has come back strong after the unexpected knock of early pandemic days, stimulus checks have stalled, and unemployment is at its lowest point since Covid reared its ugly head.

All of this together adds up to a winning recipe for the US economy and considering that higher inflation all on its lonesome is a strong predictor (and contributing factor) for higher mortgage rates, that plus all the other evidence of economic upturn means we have every reason to expect upped rates, like, now.

Before you get too worried, though, let’s clarify something. None of this suggests that mortgage rates will suddenly look like they did in the Reagan era. You can be confident that won’t happen anytime soon. But big names like Freddie Mac and the NAHB both think average 30-year fixed rates could end up at or over 3.25% before the new year hits, making it something well-worth planning for. 

What Will Rates Do Heading Into 2022?

So, a small hike up to 3.2% or a little higher is looking to be in the cards while we’re busy hanging our stockings, lighting the Kinara, or preparing a Yule-time feast. But what about the coming year? What can we expect from mortgage rates as we tentatively venture into 2022?

Currently, forecasters fully anticipate that the current trend of rising rates will continue into January and beyond thanks to continued inflation and low incidences of unemployment. Despite the trials and tribulations that we’ve gone through (and will undoubtedly face in the days to come), our country’s in a pretty good spot, which typically means those predictions of rising rates will hold true.

The big mystery that we have to untangle is (generally) just how significant those increases will wind up. After aggregating predictions from the main industry forecasters, a 30-year fixed rate of about 3.5% could be on the horizon for 2022, a conservative but still present increase from our current mortgage rate of 2.9%.

That being said, we could still see a bit of a shakeup in our future because Covid sadly remains relevant. The pandemic has been a strong indicator of mortgage rates, just like any other major world adverse world event. Times of high infection, fear, and economic strain push down rates while the dissipation of such has been a signal of increases, putting us in a very volatile, uncertain position with the emergence of the Omicron variant. Should current vaccinations prove effective against the new virus variant and everything continues to be relatively under control, those mortgage rates will probably see the aforementioned increases as expected.

Yet if the coronavirus pandemic sees another major wave, rates could stay the same or even potentially fall depending on the severity. Only time will tell, but if we have to trade poorer pandemic conditions for lower mortgage rates, well, maybe taking the few percentage point hit wouldn’t be such a bad thing. As it stands, that’s around the corner, and it certainly looks like the more attractive option right now.