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Outlook on Interest Rates in 2022

The interest rate determines how much interest, meaning the monetary charge you pay to the lender, you pay when purchasing a home. The higher the interest rate, the more you pay over the course of your mortgage. However, there are potential drawbacks to low interest rates as well, such as increased competition for homes and subsequent higher average listed home prices. This review discusses the current interest rates in 2021 and what is likely to happen to interest rates in 2022. 

Where are the current interest rates?

The current interest rates in the fall of 2021 are lower than they have been in previous years. Currently, the average interest rate for a 30-year fixed mortgage is 3.035% (as of November 5th, 2021). This is significantly lower than in 2019, when the average interest rate for a 30-year fixed mortgage was generally higher than 4%. 

Will the federal reserve raise interest rates in 2022?

The federal reserve is expected by many economists to raise interest rates in 2022 (or in 2023). This is largely due to how well the economy has performed in the early part of the second half of 2021. Home prices have continually risen due to the increased demand caused by the generous buyer’s market the lower interest rates have contributed to. 

What will happen if interest rates rise in 2022?

Many believe a rise in interest rates is the most likely scenario. However, the rate at which this occurs is unknown. Some feel as if a gradual increase throughout 2022 (and possibly 2023 and 2024) is most likely. As chief economist for First American Financial Corporation Mark Fleming said “You don’t hit the brakes right before you run into the car in front of you; you start to tap the brakes long before you get there.” This is in reference to the rate at which the fed should increase rates over the next several years. Others believe increasing interest rates may happen much faster in 2022. 

What will happen if interest rates remain stagnant in 2022?

A drop in the interest rates in 2022 is the least likely scenario, and it seems unlikely that they remain stagnant. However, if the interest rates did remain around where it is now or if there is a slower increase to the interest rates than what is anticipated, then you could a similar level of consumer spending to what we have now. Many believe that this is contributing to inflation rates that are far higher than what the fed desires. The contrarian viewpoint, however, is that lower interest rates improve the ability of would-be homebuyers to purchase a home at reduced interest long-term. 

Final thoughts

Interest rates are most likely to rise in the early part of 2022 and continue to rise throughout the year. This means the time to buy a home may be now before the rise in rates and while the interest rates are lower than they have been in previous years.

EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.

EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129

(615) 896-5656

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