Posted by Matt Curtis on Monday, June 13th, 2022 11:18am.
Interest rates are starting to not only level off but decline for the first time in 2022. How did this happen when the Federal Reserve just raised rates? For a little background, rates have increased 2% this year from 3.409% to as high as 5.593%. For the week ending May 20th, rates were down to 5.46% on an average 30 year mortgage, according to the Mortgage Bankers Association.
Rates started increasing rapidly this year as the Fed backtracked on its previous federal funds rate hike plans. The federal funds rate is the rate at which commercial banks borrow and lend to each other overnight. It’s not the same thing as a 30 year mortgage rate but it does impact mortgage rates.
The other thing that impacted rates was the Fed's decision to begin quantitative tightening in June. The Fed has been working to keep rates low by quantitative easing, which is when they buy treasuries and mortgage backed securities to help keep interest rates down by increasing the demand. Quantitative tightening is the opposite of that, where they begin selling treasuries and mortgage backed securities to increase the supply, which also increases interest rates.
All of this was done to help fight sky high inflation by decreasing the demand for loans such as mortgages. As with everything in life, the market overreacted initially to the Fed's interest rate hikes and quantitative easing plans. This is why you're starting to see interest rates stable off and actually begin to decrease.