Are Interest Rate Trends a Good Sign for Buyers? 

Good news for homebuyers in 2022? The Federal Reserve interest rate spikes may be a good sign for homebuyers in 2022. I know what you’re thinking, “How can increased interest rates be a good thing?”  The short answer, according to the experts, is “buying power”. Let’s discuss the hike in rates first.

The Federal Reserve has already increased its rates to 0.25% and intends several more increases in 2022. Compared to most of 2021 rate of 0.08%, the rate has tripled! By the end of the year, the Fed predicted it could rise to 0.5%. Historically, that is still the lowest it has been since December 2016. And before that, the rates were never higher than 0.3% going back to 2008. 

Why are they moving the rates now? The Fed Chairman Jerome Powell said it is to combat inflation that rose to a 40 year high of 7.5% at the end of 2021. Given the pandemic, the current state of the world, and how much Congress injected into the economy over the past few years, that number probably should not be much of a surprise. 

Of course, the fed rates will affect mortgage rates. Of course, the fed rates will affect mortgage refinancers. And of course, the fed rates will affect home equity line of credit rates. The average mortgage interest rates this time last year were 2.9-3.0%. With the fed rate hikes, experts are predicting mortgage rates may increase to 3.4-4.0% by the end of 2022 for 30-year mortgages. This is around the pre-pandemic record low of 3.6% in 2019.  So why might the spike in the fed rates be a good thing?

The consensus is that the increase in federal rates will lead to a cooling of the intensely frenzied sellers’ market that was 2021. Chief economists for the Nation Association of Realtors, Navy Federal Credit Union, and Fannie Mae all agree that home value appreciation will slow, and sellers won’t be seeing 5-50 offers on the house every time a new listing comes up. 

They believe that the increased rates will lead to fewer buyers entering the market and because of that, buyers won’t have to overpay or compete with more than one additional offer to purchase a home. The experts believe that prices will continue to rise considering single-family home inventory was at an all-time low at the end of 2021, down 13.8% from 2020. The National Association of Realtors is forecasting that the prices won’t increase by double digits percent going forward. Single-family home sale prices grew 17% in 2020 and 2021 but are projected to be under 10% for 2022. 

One way they might look to increase single-family home inventory, I would hope, is the government investigates curbing corporate-owned to rent single-family homes. Some estimates are as high as 1 in 5 new single-family homes will be purchased by businesses to be used as rental properties. While it may be unclear how the interest rates will affect this number, the increase to nearly 20% of the new single-family home market being purchased by corporations for rental profits is alarming, to say the least. It is certainly a factor in the lack of inventory causing the purchasing frenzies of 2020 and 2021. 

I will be hoping this helps homebuyers in 2022 (me included) and, as they say, I’ll be keeping my receipts on the NAR’s predictions.