2022 Predictions: Fed, Inflation, Stocks, Interest Rates, Housing, & Rents

By Jay Voorhees

January 3, 2022 4 min read

2022 Predictions: Fed, Inflation, Stocks, Interest Rates, Housing, & Rents

Happy New Year! Here are some predictions for 2022 – even though I implored everyone to ignore all predictions in this recent blog. 😊

I am sharing these predictions, however, for two reasons: (1) they are from Barry Habib and he has been more accurate than anyone over the last several years; and (2) they involve factors that significantly influence the mortgage and real estate industries – and are encouraging overall.

Accuracy Of Barry’s 2021 Predictions

Barry shared his predictions last week in one of his MBS Highway Videos – that are unfortunately behind a paywall.

He started the video by first pointing out how accurate his 2021 predictions were.

He predicted that rates would rise early in 2021 and then fall later – and that is exactly what they did.

But – they did not fall as much as he predicted and they did not fall as a result of a recession – which is something else he predicted.

He also predicted significant housing appreciation (in contrast to CoreLogic’s prediction of depreciation), but he predicted “high single-digit” appreciation when actual appreciation was about twice that rate.

Overall though – he was, once again, more accurate than most anyone else.

The Fed & Inflation

Barry reminded us that the Fed is going to both hike short-term (Fed Funds) rates and continue to taper (stop buying mortgages and government bonds) in 2022.

But – paradoxically, he thinks this will cause long-term mortgage rates to fall next year because the Fed’s actions will either stem inflation or send signals to the market that inflation will be stemmed.

He makes his case by pointing out how the Fed has successfully fought off inflation in the past by increasing the Fed Funds Rate (early 1980s under Volcker; early 2000s under Greenspan).

And – in both those cases, rates ended up falling significantly.

Stock Market

Barry also pointed out how the rate increases under Volcker and Greenspan pushed the economy into a recession, causing stock prices to plummet.

Hence, Barry is predicting a 10% drop in stock prices in 2022 too.

Interest Rates

Barry reminds us that rates have risen almost 1% from 2020’s lows (from 2.5% to 3.375%) – and those increases were largely driven by inflation concerns.

He predicts that continued inflation concerns will push rates up another 3/8% early this year (to about 3.75%), and this is something we are seeing now in real time.

But, he thinks the Fed’s inflation fighting efforts (tapering and Fed Funds hikes) will be successful – so rates will fall to the 3.0% range later this year.

This of course is a very good thing, as significantly higher rates would likely adversely impact the housing market, while slightly higher rates will have a minimal impact (subject of Wednesday’s blog).

Housing Prices

Barry predicts continued strong housing appreciation, but at only about half the rate we saw in 2021 (he predicts “mid to high single-digit appreciation”).

Rental Rates

Barry predicts that rents will continue to rise too at a rate of at least 5% but possibly much more – making the point that this is one more incentive to buy a house (in order to fix one’s housing payment).

WHAT MIGHT MAKE BARRY WRONG?

Inflation Gets Out Of Control. If inflation gets out of control, despite the Fed’s best efforts, rates could shoot much higher but I think that is unlikely.
A Larger Stock Market Correction. Because stocks are at record high levels, based on every measure (price to earnings ratios; total value relative to GDP; etc.), many market watchers are predicting a stock market correction of much more than 10%. If that happens, rates will likely fall much more Barry predicts, as investors will move money from stocks into bonds (as a “safe haven”) and that will drive rates down.
Too Much Faith In The Fed. Jeff Snider of Alhambra Partners frequently makes the case that the Fed does not have the power that people like Barry think, and that many of the results attributed to the Fed are mere coincidences that would have occurred anyway, irrespective of Fed action. I recommend Mr. Snider’s Making Sense Podcast for anyone who would like to learn more about this. Snider also thinks inflation will not be as serious as people think, and that it has little to do with the Fed (another future blog topic).
China. China’s super-leveraged economy is even more precarious than ours and major defaults and even a currency crisis could rattle the markets significantly, and again send rates downward more than Mr. Habib predicts.