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The Impact of Projected 2022 Interest Rate Increases

Personal connections, street smarts, and marketing. Those are my superpowers.
 
Talking or writing about interest rates is a departure from what you’ll normally hear from me. But interest rates are going up and are about to go up even more this year (and maybe in a big way) to 2008 levels for the first time since then. Big changes in interest rates and thus, mortgage rates, mean big impacts. 
 

What will the FOMC do with Interest Rates?

There are things to think about as we move into March 2022, with the promise by the Fed to increase rates a half point at the March 15-16 Federal Reserve Meeting. According to the Federal Reserve, “The FOMC schedules eight meetings per year, one about every six weeks or so. The Committee may also hold unscheduled meetings as necessary to review economic and financial developments.” (“The Fed - What is the FOMC and when does it meet?”)

After the March 15-16 Fed meeting, the rest of their meetings for the year are:
  • May 3-4 
  • June 14-15 
  • July 26-27 
  • September 20-21 
  • November 1-2 
  • December 13-14 
There are six more opportunities after the March meeting to raise rates this year and, depending on other things going on in the world, the Fed may raise rates at all of them.
 

The History of the 30-Year Fixed Rate

This Macrotrends chart shows the history of the 30-year fixed rate. For a benchmark, as of February 2022, the fixed rate on a 30-year mortgage is 3.89%.

impact of interest rates





https://www.macrotrends.net/2604/30-year-fixed-mortgage-rate-chart'>30 Year Fixed Mortgage Rate - Historical Chart

High interest rates, high gas prices, and high grocery bills of the late 70s – early 80s made an indelible mark on our memories. We can’t fathom what it feels like to apply for a 14% interest mortgage loan. That’s not cheap money.



What are the Impacts of Rising Interest Rates?

1. Fewer buyers may be able to afford to pay a higher interest rate for homes whose prices are higher, much higher than just a year ago. If demand goes down, housing prices may begin to decline. The future price you can get when selling your property may be less than you can get today.
Conclusion:  Sellers may want to sell sooner than later to avoid a lower demand, lower price, fewer buyers scenario caused by increasing interest rates.

2. If you pay cash for your home(s), decreasing house prices are good for you but at some point, you may prefer to invest cash in high yielding safe investments (HYSE), instead of paying cash for a property, especially if the HYSE rate is greater than a mortgage rate. 
Conclusion:  Buyers who pay cash for a house should monitor interest rates and may choose to invest their cash if rates go high enough. Then financing property purchases at relatively low interest rates, while investing free cash, may be the choice.

3. Buyers who want to finance their home purchase(s) need to be aware of the impact an increase in rates will have. 
$1M loan at 4% for 30 yrs:  Monthly payment of $4,774.16  Interest:  $718,695.06
$1M loan at 5% for 30 yrs:  Monthly payment of $5,368.22  Interest:  $932,557.84
Conclusion:  Buyers who finance their home purchases in a rising interest rate environment should consider buying sooner than later before interest rates price them out of the home they want.

 

The unique situation in our current real estate market is that, despite all that is happening in the world right now, there are many ready, willing, and able buyers who are excited to buy a home as soon as they see the one they love. Putting your property on the market, either as a regular or a private listing, may be your next step if interest rates or other considerations cause you to want to sell. 
 
Then I get to use my superpowers -- personal connections, street smarts, and marketing --- to stage your home to sell to the right ready, willing, and able buyer who falls in love with it. Contact me to learn more about what I can do for you and your home.

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A savvy outlook, extensive experience, and personal relationships have helped Radnay become a leader in her field and the #1 agent in Winnetka, New Trier, and North Shore.

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