Everything You Need to Know about Interest Rates in 2022
Since the Federal Reserve (also referred to as “the Fed”) was established in 1913, interest rates have been an important part of the United States financial system. They play a crucial role in the housing market and govern the rates at which borrowers must pay back loans to financial institutions like banks and private lenders.
The COVID-19 pandemic has significantly impacted interest rates due to record-low housing inventory, high inflation rates, and uncertainty among institutional investors on Wall Street. Some experts believe that interest rates will stabilize in the next few years as we hope to move past the post-COVID life we are accustomed to.
But for many consumers, small fluctuations in interest rates don’t have a significant impact. This article explores the factors driving interest rates and why interest rates aren’t as important as you think.
Driving Forces Behind Interest Rates
The rise and fall of interest rates can’t be attributed to one individual factor since the United States economy is a complex, interconnected system with many sectors and influences. However, economists generally agree that some factors affect interest rates more than others, including:
Central banks create monetary policy and are responsible for overseeing the production of money and regulation of the financial system. Central banks like the United States Federal Reserve are government agencies but are often disassociated with politics and its pressures on monetary policy.
Central banks act to slow the effects of inflation or deflation in times of economic uncertainty. The COVID-19 pandemic is an excellent case study on how central banks operate. In the early days of COVID in 2020, the Fed lowered interest rates to stimulate refinance activity and encourage lenders to issue more loans.
As we ventured into 2021, the Fed gradually increased interest rates due to inflation tracked by the Consumer Price Index. Today in 2022, we are seeing runaway inflation and continue to watch the Fed’s actions to try to slow the sharp increase of cost for goods and services.
Are Interest Rates Important?
While interest rates are certainly important from a macroeconomic and global perspective, the day-to-day interest rate fluctuations we see today have little direct effect on consumers. Most homeowners have fixed interest rates that never change, and new borrowers' monthly payments are only affected slightly by changing interest rates. There’s no reason for buyers to get hung up on getting a better interest rate by an eighth of a percent since it has a minimal effect on your monthly payment.
Additionally, the National Association of Realtors found in 2018 that buyers stay in their homes on average 13 years, which means the vast majority of borrowers never reach their full loan term and interest payments.
This guide sought to give you everything you need to know about interest rates in 2022 and why interest rates may not be as important as you think. While the importance of interest rates is up for debate, in real estate, numbers don’t lie. Team Becker Realtors consistently sells the most homes in the Palmyra, Hershey, and Hummelstown area and gets the best results for our clients. To learn more about how Team Becker can help you reach your real estate goals, contact David or Carin at 717-679-2200.