Mortgage Outlook: Rates May Stand Still in January

NerdWallet
The spread of the omicron variant of COVID-19 may keep mortgages interest rates steady in January.

The spread of the omicron variant of COVID-19 may keep mortgages interest rates steady in January. Getty Images

January mortgage rates forecast

I predict that mortgage rates will stay about the same in January. They’re more likely to dip modestly than to rise.

The omicron variant of COVID-19 might exert its strongest impact on the U.S. economy and health care system in January, before easing up in February. I expect the economic effect of January’s omicron wave to keep a lid on mortgage rates.

If I’m wrong, it will be because mortgage rates’ recent upward trend is relentless despite workers calling in sick, airlines canceling flights and consumers paying off holiday debts rather than shopping. That last item is what we typically see every January.

What happened in December

Mortgage rates remained steady during the first three weeks of December. But the average rate on the 30-year mortgage rose 10 basis points in the last week of the year. That nudged the average rate for the month a little higher: from 3.03% in November to 3.06% in December.

This is as I predicted. At the beginning of December, I wrote that “much of December’s rate increase will happen in the last week or so of the year.” Allow me to pat myself on the back. I’m frequently not wrong with these monthly forecasts, but I seldom make a prediction that’s this specific and then hit the bull’s-eye.

Looking back at 2021

The average rate on the 30-year fixed-rate mortgage was much lower in 2021 than in 2020, which supported a sharp increase in house prices.

In 2020, the 30-year mortgage averaged 3.27% in NerdWallet’s survey. The average for the whole year fell to 2.96% in 2021. Meanwhile, home prices went up unsustainably fast. The median price of an existing home jumped 13.9% in the 12 months ending in November, according to the National Association of Realtors.

When mortgage rate averages are viewed quarter by quarter, the 30-year mortgage followed an up-down-up trajectory in 2021. The undulations weren’t especially harsh.

A rise in rates is undeniable, if gentle, since September. The 30-year mortgage averaged 2.89% in the third quarter of the year and 3.04% in the fourth quarter. Forecasters expect rates to keep going up in 2022, but most predict that the 30-year mortgage will remain under 4%.

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