Why do mortgage rates just keep rising in 2022? (Podcast)

May 26, 2022 - 3 min read

Will interest rates keep growing?

It’s already been a crazy year with regard to interest rates. But where will they go and how will they impact the housing market?

The Federal Reserve will play a large part in determining rates over the remainder of 2022, and, in turn, how many borrowers will be able to afford to buy a home or make refinancing worth it.

Mortgage expert Shivani Peterson addresses how high interest rates may go and what factors will drive them there in a recent episode of The Mortgage Reports Podcast. Here’s what she had to say.

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The Federal Reserve’s role

Interest rates grew sharply since the beginning of the year, surging over 200 basis points (2%) from 3.22% on Jan. 6 to 5.25% on May 19, according to Freddie Mac.

“We have to start with the Federal Reserve because they’re the ones driving this madness,” Peterson said.

The Fed, Covid, and inflation

Much of that growth can be attributed to the Fed’s policy changes to combat the historic inflation currently affecting the U.S. — which is their own fault, in Peterson’s opinion. The central bank dropped its rates during the onset of the pandemic to help stimulate the economy and Peterson likened it to feeding a child sugar.

“Imagine you fed your toddler candy to keep them hyped up, energized and going... You probably know that a sugar crash is coming… The crash that we ended up in is inflation.”

Since the Fed held interest rates so low for so long, inflation became a problem, Peterson stated. The Fed is taking aggressive steps to offset the inflation because it’s so high. These measures will bring down inflation but it also removes buyers from the marketplace due to the higher costs associated with borrowing.

Moving forward

The Fed’s measures to combat inflation or the global events causing uncertainty — like the war in Ukraine or Covid impacting financial markets — could lead the country into a recession. However, that could actually be helpful to borrowers.

“In recessionary times, specifically mortgage interest rates come down. Then we would see the opportunity for many people to refinance or purchase property again,” Peterson said.

Advice for borrowers

If you can afford to do it, it’s never a bad time to buy a home. Due to demand greatly outweighing supply, property values should continue rising, though not at “the same insane pace” we’ve seen the past two years, according to Peterson.

So the longer you wait, the more the house will cost. But the sooner you buy, the sooner your house gains appreciation.

“Home values going up is only a problem when you’re trying to buy. When you own, it’s a gift.”

“If you are looking to buy a home, I would still recommend you do so even at the higher interest rates because we have no reason to believe that home prices will stop appreciating. Home values going up is only a problem when you’re trying to buy. When you own, it’s a gift,” Peterson said.

Historically, mortgage rates go up and they come back down. Even if you buy at a higher rate now, you’ll be able to reduce the monthly payment by refinancing when interest rates are lower down the line.

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Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.