Buyers Took Out $1.6T in Home Loans in 2021, Borrowing Expected to Be Even Higher in 2022

U.S. Buyers took out an estimated $1.61 trillion for home purchases in 2021, marking an increase of about 9 percent from 2020, according to the Mortgage Bankers Association. In 2022, experts expect lending to be even higher due to the high competition, hefty prices and low mortgage rates.

The $1.61 trillion in bank loans for home purchases last year surpassed the $1.51 trillion lent during the housing bubble in 2005, which was the highest figure on records back to 1990. The number of loans issued to home buyers actually decreased from 4.92 million in 2020 to 4.74 million in 2021, but the size of those loans increased in 2021, the MBA said.

This was often because buyers paid more than the homes' asking prices to beat out other offers in a market where demand outpaced supply.

"Strong housing demand, persistent increase in housing demand, constrained supply, increase in prices — that's what led to that record purchase level last year," said Mike Fratantoni, the MBA's chief economist.

In October, median U.S. home prices were almost 20 percent higher than the previous year, according to the most recent S&P CoreLogic Case-Shiller home price index. The rise was among the widespread impacts of the COVID-19 pandemic, which led many Americans to start desiring spacier homes as they transitioned to remote work.

Steady job growth, a stock market at all-time highs, rising rents and expectations of higher mortgage rates have also spurred homebuyers, even as skyrocketing prices and a historically low level of homes for sale have shut out many others.

The housing market is expected to continue to sizzle this year, which is why the MBA projects that the dollar value of for-purchase home loans will climb to a new high of $1.74 trillion.

While the for-sale inventory may end up being a little better than in 2021 as homebuilders crank out more homes, it still won't be enough to give the upper hand to buyers, Fratantoni said.

"2022 is still going to be a seller's market," he said. "There's more demand than supply, and that's why we're very confident that prices are going to keep going up."

Meanwhile, homebuyers are likely going to have less buying power this year to cope with rising home prices.

The extraordinarily low mortgage rates that have helped intensify housing market demand are expected to continue creeping higher in 2022 as the Federal Reserve phases out the monthly bond purchases it has been making since the early days of the pandemic. The central bank has already signaled that it expects to start raising interest rates as early as this spring to check sharply rising inflation.

The average rate on the benchmark 30-year fixed-rate mortgage stuck around 3 percent in 2021. The MBA's forecast calls for that average rate to rise to 4 percent this year.

That's close to other housing economists' forecasts. The National Association of Realtors projects the average rate will rise to 3.7 percent by the end of this year. Greg McBride, chief financial analyst at Bankrate, forecasts rates will peak at 4 percent, but end the year at 3.5 percent.

"It will be a bit of a roller coaster ride," McBride said. "The higher rates we expect in 2022 won't take the winds out of the sails of the housing market, but it will change the refinancing equation significantly."

Homeowners borrowed some $2.32 trillion in 2021 to refinance their mortgage, down about 12 percent from 2020, when refinancing hit a record high, according to the MBA. Taken together, mortgage refinancing in 2021 and 2020 amounted to nearly $5 trillion.

The MBA forecasts mortgage refinancing will fall to $870 billion this year, the lowest since 2018′s $467 billion.

The Associated Press contributed to this report.