2022 has been an interesting year for mortgage rates. January started with rates in the low 3% range and now it’s the end of March. We are now looking at average rates in the upper 4’s! What happened?
We knew interest rates would go up this year, the Fed made announcements in January that they were looking at stopping the purchase of mortgage backed securities. They also said they wanted to raise interest rates to help lower inflation. Inflation is at 40 year highs, the pandemic’s economic impact seems to be subsiding and the Federal Reserve outlined it’s 2022 policy plan, all of which leads to higher interest rates. Interest rates jumped in the first quarter of 2022 by over 1 point putting the average rate in the upper 4% range. Last week interest rates jumped on Tuesday and again on Friday, Friday’s average rate brought rates close to 5%. With the increase in rates, the average mortgage payment is about 20% higher than it was a year ago.
The Fed has said they plan to raise rates at each meeting this year. What is unknown at this time is how much. Investors anticipate a .25 point increase at each meeting but depending on inflation, they could raise them .50 point at some meetings. The Fed will look at the economy and make decisions as the year goes on. The war in Ukraine can affect this and so could a new Covid variant, so the Fed will be watching to see what is happening in the economy and make their decisions based on that.
Investors try to predict what is going to happen based on comments made by members of the Federal Reserve board and also what is going on in the world. As we move into April, many expect rates to continue to climb. At the beginning of 2022, most expected rates to be close to 4% by the end of the year – that happened within the first month of 2022. Now many expect interest rates to be in the 5% range – maybe close to 6% by the end of 2022.
What does this mean for those looking to buy a home? Sooner is probably better than later for getting a lower interest rate. There are things you can do to help yourself get the best interest rate too. Your interest rate will depend on several things – your credit score is one of the most important factors when it comes to interest rates. Others are your down payment, the type of home you are buying (condos tend to be a higher rate), your loan to value can also make a difference in your interest rate. If you know you can’t buy until the end of 2022, make sure you work on keeping your credit score as high as possible.
In reality interest rates are still really good. We are all spoiled with rates in the 2-3% range! According to Freddie Mac, the 30 year fixed rate averaged 7.79%, so anything below that is still a great rate. Those that were buying homes in the 1980’s will tell you about interest rates in the upper teens – like 18%! I’ve been a loan officer for 30 years now and the highest I think I locked anyone was in the upper 9% range. So overall anything in the 4 and 5% range is still a great rate. However if you met with your loan officer towards the end of 2021, you do want to update your loan approval, With interest rates climbing, it does affect what you can buy. Make sure you stay in touch with your loan officer so you are aware of what you can buy and what the monthly payment will be.