Common Sen$e: Interest Rates in 2022

ART WOOD

Over the last two years, we have seen some things that we never thought we would see. Many industries that seemed recessionproof realized they weren’t pandemic-proof, but there are a few that have thrived over the last two years, and number one among those is the mortgage industry, fueled by historically low rates. As we slowly emerge from the pandemic slow-down, interest rates are slowly going back to pre-pandemic levels. One of the biggest questions for 2022 is, “Where are interest rates headed?”

The overwhelming majority of financial analysts agree that rates will be headed up primarily due to inflation as well as the withdrawal of government support, i.e. buying bonds and Treasuries. Inflation is the arch enemy of bonds and Treasuries. Both bonds and Treasuries provide a fixed rate of return on your investment, and right now, inflation, at over 6%, is more than double what the return on Treasuries is. Currently, the Ten-Year Treasury is at 1.48%, which means if you invest $10,000 in that Treasury, you will make $148 per year. With the cost of money (inflation) outpacing your investment in Treasuries, Treasuries must go up to be an attractive investment. If Treasuries and bonds go up, so do interest rates.

The biggest thing driving inflation is supply chain disruption. The global shutdown from the pandemic mixed with pent-up demand for goods has led to a massive backlog of unfilled orders. (Think…I am confined to my house and just got my stimulus check, and Amazon is right at my fingers!!) We currently have way more demand than we have supply, so, harking back to Economics 101, that means prices go UP! A real-world example from my family came when my mom just bought a car. She paid sticker price plus almost $9,000 simply because the dealership could get away with charging extra; they had only one car to sell, and if my mom didn’t buy that car, the dealer had a long list of people waiting to pay an inflated price for it.

Finally, the third reason rates are projected to go up is because the Federal Reserve has reduced their bond and Treasury buying and will be fully out of the market in March of 2022. They also expect to raise interest rates multiple times over the next two years to tame inflation. The thought behind this is that the free market is running too hot right now (6%+ inflation) and they want to cool it off. This is bad for interest rates and bad for the stock market.

As I conclude, I hope you weren’t expecting me to tell you exactly where rates are going in 2022. If I could do that, I would be retired somewhere on my own private island. My purpose in writing this article is to prepare you for what may be coming. Mortgage rates, credit card rates, personal loan rates, and Home Equity Line rates will all be higher. The solution to that is to act now while the rates are still low. Take measures to secure any existing debt at the current low interest rates. Are they as low as they were in January? No, but they are still under 4%. If any of your debt is adjustable or over 4%, then look for an opportunity to lock in now at a lower fixed rate to protect yourself against inflation and rising interest rates. As always, let me know if I can help!

ART WOOD (NMLS #118234) is the branch manager of The Art Wood Mortgage Team of Goldwater Bank, located at 2341 Main Street in downtown Tucker. “Tucker’s Mortgage Guy” for sixteen years, he is a former Tucker Tiger (Class of ’92), and co-founder and organizer of Taste of Tucker. Family guy, community guy, and definitely not your typical mortgage guy - it’s all that he does that makes Art Wood who he is. Contact him at 678.534.5834 or art.wood@goldwaterbank.com.

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