Today (April 5, 2022), the average 30-year fixed mortgage rate crossed 5%, according to Mortgage News Daily.
Last year to date, the average rate was 3.38%.
Why are interest rates rising?
There’s a few reasons for rising interest rates, including:
- Supply and demand
- Inflation
- Government influence
Let’s focus on inflation, as it’s the hot topic of the moment. According to a recent study by CNBC, 48% of consumers are thinking about rising prices all the time. Three-fourths report being worried that rising prices will force them to rethink their financial choices in the coming months.
Inflation can directly affect rising or falling interest rates. Mortgage lenders must increase interest rates to compensate for the potential of decreased value of the money they are paid in the future.
Not to mention, the Federal Reserve has a direct impact on interest rates. When inflation is increasing as rapidly as it is right now – the Fed will raise interest rates in an effort to slow the economy and bring inflation levels down.
Will rising interest rates stop investors from buying real estate?
Low interest rates generally encourage a spike in real estate activity, while high interest rates do the opposite.
As a reminder, the average rate on the same date (April 5, 2021) was 3.38%. And the real estate market reflected it.
According to Zillow, home values rose 20.3% over the past year. But interestingly enough, Zillow also predicts they will continue to rise 17.8% over the next 12 months.
Zillow also expects more than 6.4 million existing homes to sell in 2022, up 4.8% from an already hot real estate market in 2021.
But not everyone is as optimistic.
“I believe home price appreciation will normalize in 2022 and home price growth will begin to more closely track inflation,” according to Bill Dallas, president of Finance of America Mortgage. Redfin also predicts home-price growth to slow 7% by the end of 2022.
Investing in real estate in 2022
Among the plenty of alternative investment ideas trending in 2022, is real estate a strong one? Some investors are still looking to expand their investment portfolios with real estate, without the commitment of managing a multi-family property or buying a home.
REITs (Real Estate Investment Trust) are an amazing way to invest in real estate, with low commitment. REITs cover a vast array of real estate investments including commercial, office and apartment buildings, warehouses, shopping centers, hotels, and even financing. Most REITs can be bought through major stock exchanges.
Additionally, plenty of online platforms such as Fundrise, CrowdStreet, Yieldstreet and more allow for private real estate investment options. (All able to be tracked on AltExchange’s alternative investment reporting platforms.)
Overall, it’s impossible to say whether or not real estate will continue to boom throughout 2022 or burst. But diversifying your portfolio, protecting against inflation, and keeping track of your investments’ performance are all always good ideas.