2022 Could Bring Higher Mortgage Rates

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When the COVID pandemic began, the Federal Reserve took unprecedented action to control pricing, resulting in historically low mortgage rates. These rates have continued for the past 20 months, but it looks like mortgage rates will be rising in 2022. At their most recent meeting, the Fed announced new actions to control inflation, which will likely result in higher interest rates as soon as January 2022. The upshot of all this is that, if you’re on the fence about buying or refinancing, we recommend taking action as soon as possible. 

Learn more about what current mortgage rates mean for borrowers. Check out the latest post:

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2022 Could Bring Higher Mortgage Rates

Right now, borrowers benefit from fairly low mortgage rates… but that might change at the onset of the new year. Officials from the Federal Reserve met on December 15, and all signs from the meeting suggest that federal interest rates will increase in early 2022. According to the Reserve, the current rate of inflation calls for immediate action, and raising interest rates is one way to bring prices back under control.

How the Fed’s Actions Could Influence Mortgage Rates

The question is, how will this action from the Federal Reserve change current mortgage rates? It’s important to understand that while the Fed does not directly control mortgage rates, their actions can have a significant impact on whether mortgage rates rise, fall, or remain stagnant.

For example, in March 2020, the Fed began buying up mortgage-backed securities, a type of bond that can be hugely influential over mortgage rates. Indeed, their actions go a long way toward explaining the low mortgage rates today. The Fed ultimately snatched up more than $2.6 trillion in mortgage-backed securities, resulting in mortgage rates that plummeted to near-historic lows. They’ve remained there for 20 months and counting.

The initiative to buy all these mortgage-backed securities was conceived as a safeguard against the disruption of COVID-19. However, the Fed has backed off from this plan considerably. And now, they are turning their attention to a new concern: Rising rates of inflation.

The Future of Mortgage Rates

At their meeting in December, the members of the Fed announced plans to taper off its purchase of mortgage-backed securities further still. This “tapering” will be fairly aggressive in nature and is slated to begin as early as mid-January. (Initially, the Fed was planning on beginning the tapering process later in the year.)

“Inflation is running well above target, and the job market is booming,” Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni has stated. “That is why it was no surprise that the Federal Reserve moved to accelerate their taper of Treasury and MBS purchases and signaled that the first rate hike will be coming sooner rather than later.”

While current mortgage rates are well below three percent, it is our opinion that they could rise above four percent in the coming calendar year. Many industry experts feel the same way, forecasting mortgage rates that end up between 3.4 percent and 4.1 percent in 2022.

How Changing Mortgage Rates Will Impact Real Estate

The question is, how will changes to the current mortgage rate impact the real estate scene?

It is our opinion, based on all available data, that the entire real estate market could be disrupted. With “historically low interest rates” a thing of the past, home buying may slow. Sellers, as a result, may not enjoy the sky-high demand they are seeing today.

Additionally, we think the change to current mortgage rates will lead to a reduced rate of refinancing. Right now, we are seeing a lot of borrowers whose mortgages began many years ago, when rates were higher. These borrowers have been refinancing to take advantage of the more affordable rates, but the higher those rates go, the less appealing this is going to be.

What Should Homeowners Do with Current Mortgage Rates?

All of this raises a question: Given mortgage rates today, and given the expected changes, what should homeowners be doing right now?

For one thing, we would certainly recommend that any homeowners who are interested in refinancing do so now, while there is still time to take advantage of these low, low rates. After January, and especially later in 2022, we foresee a lot of borrowers who regret not refinancing when the timing was right.

And what about homebuyers, particularly here in the State of California? As we’ve previously noted, we do think that surging California real estate prices will slow a bit, but we don’t think there is going to be any kind of crash. Homeowners, even those struggling to make their mortgage payments will have plenty of equity to avoid foreclosure.

Take Advantage of Mortgage Rates Today

he bottom line? Mortgage rates are looking really nice for borrowers right now, but they may not look as rosy come this time next year (or even next month). If you’ve been on the fence about buying or refinancing, now’s the time to do it. With any questions about the process, contact an experienced local lender who can help you find the best rates, as easily as possible. If you’re in California, we welcome you to connect with our team at LoanFleet.