Fannie Mae Says Mortgages Rates and Home Prices Will Rise Next Year

A real estate agent shows a couple with an infant a house.

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Home buyers may have a tough road ahead if these predictions come true.

Home buyers are struggling to purchase homes today for a good reason. Home prices have soared on a national level, and now, it's become harder to find an affordable place to buy on a limited budget. Even buyers with larger budgets are struggling to find properties in the current market.

Low mortgage rates have been the one saving grace in today's housing market. Though rates have ticked upward recently, they're still sitting at very competitive levels, historically speaking. Those low mortgage rates are helping to offset higher home prices.

But mortgage giant Fannie Mae has some bad news for prospective buyers. In its most recent forecast, it expects home prices to continue rising in 2022. Making matters worse, it also expects mortgage rates to climb.

Will mortgage rates make it harder to buy a home next year?

The average 30-year fixed-rate mortgage rose to 3.05% for the week ending Oct. 14, according to Fannie Mae's tracking data. Meanwhile, it expects the average 30-year mortgage to reach 3.3% next year, up from the 3.1% it projected last month.

Clearly, that's not the best news for home buyers. The more mortgage rates climb, the less affordable homes will be, especially if prices don't start to come down.

At the same time, it's important to put an average mortgage rate of 3.3% into perspective. On a historical basis, that's still an extremely low rate. It's true there was a point earlier this year when the average 30-year loan sat at under 3%. But 3.3% isn't a terrible rate. In fact, it translates to just $438 in principal and interest per $100,000 borrowed in mortgage form.

Granted, most borrowers need a higher mortgage than that. But for a $300,000 mortgage, that's a monthly principal and interest payment of $1,314.

Of course, that's not the only expense homeowners will need to account for. In addition to their mortgage payments, homeowners have to cover the cost of property taxes, homeowners insurance, maintenance, and, in some cases, HOA fees and private mortgage insurance. But all told, if Fannie Mae's projections come true, mortgages should still be relatively affordable.

Whether homes are affordable in your location is another story. As of this summer, prices were already up 19.7% from the previous year. And many buyers can't afford to stretch their budgets further.

How to prepare to buy a home in 2022

If your goal is to buy a home in the coming year, there are two important things to work on. First, aim to boost your credit score. The higher your score, the more competitive a mortgage rate you're likely to qualify for.

Next, sock away extra money for a down payment on a home. That will give you more flexibility if housing prices continue to rise.

Finally, gear up for a tough market. Preparing yourself mentally could make the process of trying to buy a home easier. This especially holds true if you're a first-time buyer and are jumping in at a quite challenging time.

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