Are interest rates going up in 2022?

Posted May 23, 2022

Mortgage interest rates dropped significantly in 2020 and 2021. This was the Federal Reserve's response to the Covid 19 Pandemic to help stimulate the economy. However, there were some negitive side effects. According to the Government Sponsored Entity (GSE), Freddie Mac (FHLMC), the average interest rate for the week ending on November 29, 2021 was 3.11%. That interest rate was up slightly from 2.72% for the same week in 2020. Interestingly, as the world has gotten more accustomed to hearing about the Pandemic, and without much effort from the Federal Reserve, interest rates have begun to slowly rise. As of December 21, 2021 these mortgage interest rates are still historically low. Many Lenders and Realtors believe that these low interest rates are partially to blame for the historically low residential housing inventories that has recently been pervasive across the United States.

Unfortunately, for First Time Home Buyers and moderate income families, these very low housing inventory levels have dramatically increased home prices. This situation has priced a lot of moderate income and First Time Home Buyers out of the housing market. The concept that, "This is your first house, not your last house", is truer today than ever before. First Time Home Buyers will now have to somewhat temper their expectations of how large, and what their first home will look like. You may not be able to afford a two car garage and you may not be able to get that extra bedroom for visiting family. All housing prices are based on the amount of heated square feet. Secondarily with lower appraisal footage value comes the garage size, inground pools, covered patios. Updating with things like granite counter tops, furniture buid ins, are the very least increases in value on an Appraisal, as long as the house is in good condition. This is true whether its a SFR, Townhome or Condominium. Home prices are all primarily priced by the heated square footage and an acceptable insurable roof. With all other things being equal, the bigger the house the more it will cost.

Many First Time Home Buyers will now need to consider proven and ethical Rent to Own options. If the Rent to Own Home program is legitimate and isn't predatory, there are a lot of major advantages in today market to use this option. It may very well be the only way to purchase your first Home in 2022 going forward.

As the Federal Reserve tightens monetary policy in an effort to curb rising inflation, it is an accepted opinion of mortgage and real estate professionals, that interest rates will slowly increase. We are now in an interest rate, "rising environment". This should be a positive effect for housing inventories. Higher Interest rates should slightly decrease the demand and increase the inventory supply levels of residential housing. We expect that townhomes and condominiums would be the first residential homes to see that slight increase in inventory with single family homes to follow. If some responsible home building permitting regulations were changed to encourgae value based builders, that would also help the supply and demand issue for lower cost homes. Unfortunately, the politicians in Washington DC aren't known for responsible home permitting regulations.

The inflation rate is currently much higher than its been since 1990. High inflation is exactly what caused the highest mortgage interest rates in history. The runaway inflation in the early 80's was caused by government overspending, rising oil prices, and rising food prices. Does this sound familiar? You're seeing it happen right now. Hold on to your seats!

The Fed is expected to slowly raise interest rates and reduce the amount of Mortgage Backed Securities it purchases in an effort to try to curb that inflation. This "bumpy tapering ride", should be taking place before the end of 2022. This is being done by the Federal Reserve to attempt to control the US Economies recent dramatic elevated inflation.

Per all the most current available data that we can see from the Federal Reserve and the Mortgage Lenders Associations, we are predicting that interest mortgage rates will rise between .25% - .50% by the end of 2022. If you're thinking about refinancing or purchasing a home, you might want to jump into the market soon because mortgage interest rates while volitile, will not be going down and the cost of borrowed money will continue to rise. As incomes slowly rise and inventory levels increase, we expect that First Time Home Buyers, who traditonally have been about 35% of the entire Home Buying Market will begin to come back into the housing market with more realistic expectations of what they can afford to purchase. Good luck in 2022!

Article by R. Lazzarino, Florida Down Payment Assistance & Real Estate Expert.