Where are 2022 Interest Rates Headed?

As 2022 kicks off with record-low inventory and increasing interest rates, we reached out to Erik Henderson, a Branch Manager and Loan Officer at Northpoint Bank, to get some insight on where he sees rates headed this year and what is influencing these market changes. 

Where are 2022 Interest Rates Headed?

by Erik Henderson of NorthPointe Bank

The big question… What are rates going to do in 2022? In 2020, when the pandemic struck, the Federal Reserve began to purchase mortgage back securities & treasury securities to artificially push the interest rates to the lowest level in history. With the Fed spending 120 Billion or more dollars per month, this was keeping the interest rates low no matter what economic data was presented. In November 2021,  they began scaling back the bond-buying and have plans to end the bond-buying program by March of  2022. Without the feds keeping interest rates low by purchasing bonds, the market will return to a more economically data-driven structure. 

Since the beginning of the year, we have already seen a substantial rise in interest rates and the general consensus is that this trend is going to continue throughout the year.  One of the biggest contributing factors to higher rates is inflation. As we have all seen, inflation is very real and the economic reports are starting to show it. In order to try and combat inflation, they will be raising the fed funds rate (short-term rates). The biggest question is, when and how quickly will they raise these rates? Currently, the prediction is that they will raise the rates in the March 2022 Fed meeting and it will increase by .25% – .50%. They also predict three rate hikes in 2022 for a total of 1% higher than the current levels. Although the federal funds rate going up does not directly correlate to long-term mortgage rates, it seems the long-term interest rates will also follow the trend. As the economy recovers and there are positive economic reports, the rates will continue to trend higher in 2022. With COVID still affecting the economy and turmoil overseas, we will see ups and downs in the rates, but the general trend will be higher, and where it stops no one knows. 

In my personal opinion, the rates that were available from 2020 through 2021 were the lowest in history and we will likely never see those rates again. Having already seen a substantial rise in rates this year, I do still believe we are going to see the rates increase even further as the year continues. If you are still considering a refinance or purchase of a new home, I would recommend looking into it sooner rather than later. The year 2022 will feel something like a rollercoaster with rates, as we will see minor improvements throughout, yet the trend line will be higher. The only way I see the rates going back to the levels we saw in 2020, would be a dramatic unforeseen event or economic downfall.

You can connect with Erik Henderson via email at erik.henderson@northpointe.com.