Interest Rate Predictions for 2022

Mortgage rates are based on the “federal funds rate,” an interest rate set by the Federal Reserve that constitute the target rate at which commercial banks must lend to each other overnight in order to remain in compliance with their reserve requirements (since banks are legally required to have a certain amount of cash as a reserve).

Because of the cascading nature of the money supply (from the government level down to the retail level at which it is available to consumers), this federal funds rates affects all other interest rates in the financial industry of a country, including the mortgage rate.

The federal target rate is currently between 0% and 0.25%. Federal reserve leaders have forecasted that by the end of 2022, the federal funds rate will be between 0.75% and 1%. This is expected to occur through three separate interest rate hikes during the course of the year. Fed leaders have made additional forecasts that by the end of 2023, the federal funds rate is likely to be 1.5% and 1.75%. Analysts have stated that the rising interest rates will be an attempt by the Federal Reserve to reduce inflation.

In a historical context, these rates are still on the low side. You can see in this graph of the federal funds rate since the 1950s that the average rate fluctuates around 4-5%, with an extreme peak of 20.61% in 1981.

In any case, it is definitely likely that interest rates will be rising in the coming years. If you want to take advantage of historically low mortgage rates, then they should do it now. Low interest rates do not only mean lower monthly payments, it also mean that it is easier to qualify for a mortgage. Helping people qualify is what we do every day, and for our clients, the difference in working us is that they can now buy the property they wanted whereas they thought they could not.

For a free consultation or second opinion, call Alejandro Szita at 310-294-9417.