Why It Was Harder to Buy a Home in January 2022 Than in All of 2021

The start of the year was particularly challenging for buyers.

When 2021 wrapped up, the 30-year mortgage rate was sitting at under 3.4%. As of the end of the month, rates were closer to 3.8%. That's a pretty substantial jump for a one-month period, especially after a year when mortgage rates didn't move very much from one month to the next.

It's for this reason January was one of the most difficult months to buy a home since the start of the pandemic. And if mortgage rates continue to rise, borrowers might struggle even more in February -- and throughout 2022.

January was tough for home buyers

It's not just that mortgage rates climbed a bunch in January; home prices also remained quite elevated, and inventory remained low. Those factors combined to make it a tough month for home buyers -- particularly first-time home buyers on a budget.

To be clear, home prices were high throughout 2021, and inventory was very limited. But at least mortgage rates were low enough to help offset the higher prices buyers were being presented with.

While today's mortgage rates are still pretty competitive on a historical basis, they may not be low enough to compensate for higher home prices. A lot of buyers who held off on purchasing homes in 2021 may find that 2022 is by no means a better time to be navigating the housing market.

Will mortgage rates continue to rise?

There's a good chance mortgage rates will continue to tick upward as 2022 moves along. Hopefully, we won't see as rapid an increase in rates in the coming months as we did in January. If that were to happen, rates could easily reach the 5% mark by mid-year.

Last year, the Mortgage Bankers Association predicted the 30-year mortgage rate would increase to 4% by the end of 2022. Based on recent movement, it seems as though that's more than likely. But whether rates well exceed the 4% mark is yet to be determined.

Still, it's worth noting the Federal Reserve plans to raise its rates this year. While the Fed doesn't set mortgage rates, or any consumer interest rates, its actions can influence mortgage rates and drive them upward.

Should you give up on buying a home in 2022?

Not necessarily. While mortgage rates may end up higher than anticipated, let's remember rates in the 4% to 5% range aren't very high from a historical perspective. And one thing higher rates could do is drive home prices downward.

The whole reason prices have been so high is that demand has been high. But if climbing rates send buyers running the other way, home prices could start to drop to more moderate levels, thereby making up for higher rates.

Ultimately, buyers will need to see how things play out in the housing market as 2022 moves along. But if you're hoping to purchase a home this year, don't assume it's off the table because mortgage rates are moving higher. Instead, work on socking as much money away as you can for a down payment while taking steps to boost your credit score so you're able to qualify for the best mortgage rates mortgage lenders are willing to give you.