Interest rates have hovered around 3% for the last couple of years. In fact, for a while, they fell well below the 3% mark. This prompted buyers to purchase homes. It also drove up interest in refinancing for homeowners. But it looks like that era may have ended. Experts predict that mortgage interest rates will be on the rise in 2022. In fact, they already have in just the first two weeks of the new year.
2022 Mortgage Interest Rates
Federal Reserve’s Role
The Federal Reserve acts as the central bank of the United States. It determines our nation’s monetary policy. They decide the prime rate. While this does not directly affect mortgage interest rates, many lenders use them as a basis for the interest rates they charge. The prime rate affects the rates you pay on things like credit cards, car loans, short-term bank loans, etc. The Fed increases the prime rate to help staunch inflation. At their last meeting in December 2021, the Federal Reserve alluded to three possible quarter-point increases in their benchmark rate throughout 2022. The first one may come as soon as March. Of course, future increases depend on how the economy fares at the time of their meeting. There may be fewer increases throughout the year. But as the economy grows and inflation rises, the likelihood of another increase rises as well.
How the 10-Year Treasury Yield Factors In
Even though mortgage rates for 30-year fixed-rate loans are not directly affected by an increase or decrease in the Fed’s benchmark rate, fixed-rate loans do tend to follow the 10-year Treasury yield. That has risen 0.7% from 12 months ago (from 1.09% to 1.792%), according to Market Watch. In fact, rates jumped up right after the Federal Reserve released the minutes from their December meeting earlier this month. That could be a good indicator of what to expect if/when future increases happen.
Mortgage Rates Already Marching Upwards
Freddie Mac reported a rise of almost a quarter percent on 30-year fixed-rate mortgage loans (the most common loan) between the first two weeks of the year already. On January 6th, rates were at 3.22%. The following week, they rose to 3.45%. That marks the highest level in almost two years. (They hit 3.5% in March 2020.) One year ago, Freddie Mac reported rates at 2.79%. That’s a 0.66% increase in just 12 months.
How This May Affect Home Buyers in 2022
Higher mortgage interest rates make it more expensive to borrow money to buy homes. This may mean lowering that buyers need to lower their budget in order to afford to purchase a new home. Unfortunately, lack of inventory continues to plague home buyers as well. Lower inventory elevates prices. But that does not mean you should not buy a home in 2022 if you want to. However, you may need to focus more on what you absolutely need in a home and what you are willing to compromise on. Contact me when you are ready to start your home search at the Jersey Shore.
Sherri Lilienfeld, Apex Prime Realty, Your Source for Jersey Shore Real Estate