The Federal Reserve met this week and Wednesday afternoon the Fed Chairman held a news conference. The Fed Chair said that the economy no longer needs increasing amounts of policy support. This means they are ending their bond purchases which was expected. Basically the bad news was that the Fed is going to double the pace of “tapering”. Meaning it will be reducing the amount of bonds it has been buying twice as quickly. These bond purchases have been associated with lower interest rates over the past couple of years.
So what does this mean for you and your home buying plans – or refinancing plans? Today’s move really didn’t change rates immediately as most traders had expected this news over the past two weeks. So the financial market had already priced in this change. If the Fed had made an announcement that was out of line with this, we may have seen rates move more dramatically. So going into 2022, what happens? Expect mortgage rates to increase which was also expected. The Fed is expected to increase it’s overnight interest rate from zero to about 0.90% by the end of 2022. So mortgage rates will continue to slowly move up, right now they are averaging around 3.125-3.375% and may get closer to 4% by the end of 2022 for a 30 year fixed rate. However until we see what actually happens in 2022, this is all speculation! Even at 3.75-4%, rates would be really good – we are just a bit spoiled at this point!!
The Fed did make any rate hikes contingent on further improvement in the job market but all of the Fed policy makers indicated at least one rate increase in 2022, most expect us to see three rate increases in 2022. More than likely the first rate increase would be in March but it does depend on where employment numbers are at. The Fed expects economic growth to be at about 4.0% next year, an increase over the 3.8% projected in September. One of the biggest threats to the labor market is inflation and it will take time for the economy to heal.
So if you are planning to refinance your home, you should look at doing it sooner than later. Even with rates increasing, there are still reasons to refinance-the biggest one is those that want to pull some cash out and with home prices increasing, a cash out refi makes more sense for many.
If you are planning to buy a new home in 2022, again, sooner rather than later may make more sense. We know rates will be increasing and expect home prices too also. So the sooner you can buy, the better your interest rate more than likely.
It seems like every year I have said the same thing about now – we expect rates to increase next year. While that has happened at times, we have also seen rates drop more than expected. This year we don’t expect that, but you never know!! Rates are still much lower than they have been in the past, so it’s still a great time to look at buying a new home!
Leslie Vanderwerf, NMLS ID#335509, Cross Country Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website