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A reader on Twitter wondered how rising rates will affect the 2022 frenzy.

Here’s what is expected today:

Under Chair Jerome Powell, the Federal Reserve is poised this week to execute a sharp turn toward tighter interest-rate policies with inflation accelerating and unemployment falling faster than expected.

The Fed today will likely announce that it will reduce its monthly bond purchases at twice the rate that Powell had outlined just six weeks ago. Those bond purchases are intended to lower longer-term rates, so winding them down more quickly — likely by early spring — will lessen some of the economic aid the Fed supplied after the pandemic erupted last year.

Fed officials are also expected to forecast that they will raise their benchmark short-term rate, which has been pegged near zero since March 2020, two or three times next year. Rate hikes would, in turn, increase a wide range of borrowing costs, including for mortgages, credit cards and some business loans. Just three months ago, the Fed had penciled in barely one rate increase in 2022.

Let’s note where the mortgage rates are today:

Some of the Fed hike might already be priced in, but these rates are still very attractive.  I think that any rate starting with a 3 will be attractive to buyers.

But let’s consider the history. Any time rates threaten to go up, or actually do start to rise, it causes buyers to hurry up and find a house – just to be able to lock in a lower rate. It means that we could be heading for the Ultra-Peak Frenzy, where rising rates actually create MORE frenzy!

Buyers who think sellers should lower their price to compensate for higher rates will be in for a long wait.  Sellers won’t believe it, and unless they are desperate (which very few are), they will blame the market/rates/agent before considering a lower price.  Many will try over and over again, and it might take them 2-3 selling seasons before they succumb.

Would rising rates cause more sellers to hurry up? Doubtful, but I hope so! It would be great just to get back to normal inventory (which is about double where it has been during the last half of 2021).

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