Buying a Home Just Got More Expensive, and Here's Why

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You may want to get moving on buying a home sooner rather than later.


Key points

  • Mortgage rates have risen to the point where they've surpassed 2021 levels.
  • It could pay to apply for a home loan sooner rather than later, before rates continue to rise.

Home prices have been on the rise for more than a year now, and that's made it difficult for a lot of buyers -- especially first-timers -- to break into the market. But now, home buyers could face an additional challenge as 2022 ticks along -- rising mortgage rates.

For the week ending Jan. 6, the average 30-year mortgage rate reached 3.22%, up from an average of 3.11% the week prior. And that 3.22% rate is higher than any average weekly rate for the 30-year loan recorded in 2021. Just as significantly, one year ago, the average interest rate on the 30-year mortgage was a far more enticing 2.65% -- the lowest on record.

Not surprisingly, applications to both purchase and refinance a mortgage dropped substantially in late December, even after taking the usual holiday slowdown into account. And now, the question is -- will rates continue to climb as 2022 moves along? And if so, should you rush to buy a home now?

Rates may climb, but they should stay affordable

Many housing experts predicted last year that mortgage rates would climb in the course of 2022. And given that the Federal Reserve recently signaled it would be raising rates, it's not surprising to see mortgage rates climbing.

To be clear, the Federal Reserve doesn't set consumer interest rates, and that includes mortgage rates. But its actions can influence consumer rates.

While we may be starting off 2022 with higher mortgage rates than in 2021, prospective home buyers don't necessarily need to panic. Even if rates continue to steadily climb, right now, they're still quite competitive, historically speaking. Those who don't manage to buy a home at the start of the year won't necessarily get stuck with a rate that's painfully higher.

That said, if you're intent on buying a home in 2022, it certainly wouldn't hurt to ramp up your search in the coming weeks. Though buyers today face inventory challenges, that's been the situation for many months on end. Locking in a mortgage now could be a wise move, because the lower a rate you manage to snag, the more it'll help compensate for the fact that home prices are up across the board.

Should home buyers wait until spring?

Generally, spring is when we see an influx of homes hit the market. That didn't happen last year, and we can't count on it happening this year. The pandemic has pushed a lot of people to hold off on selling their homes, and since it's still raging, it's hard to predict whether we'll see a spring housing boom in 2022.

One factor that might fuel an uptick in inventory is a booming economy. So far, the omicron variant doesn't seem to be having a negative impact in that regard. But still, with so much uncertainty, it's easy to see why sellers won't be rushing to list their homes during the first half of 2022.

As such, there's no reason to delay your home search if you're in a solid enough position to buy now. While mortgage rates could drop in the coming months, they're more likely than not to keep rising. And while those jumps may not be catastrophic, it's probably worth signing a mortgage sooner rather than later if that's something you're able to do.

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