With the rate of inflation higher than it has been in nearly 40 years, it was no surprise the Federal Reserve stated they were going to ease up on buying bonds and likely raise interest rates three times in 2022.
During an economic crisis, the Federal Reserve has two ways to stimulate the economy; buying government-backed bonds and mortgage-backed securities (also known as quantitative easing), and lowering the interest rate it charges banks to borrow money overnight.
These policies put more money into the economy, making interest rates lower, which encourages all of us to buy stuff.
As we’ve seen, this can also result in inflation.
The thing that’s important to know is that higher interest rates and less cash in the system may mean it will get a little more expensive to finance short and long-term debt.
That makes it a good time to refinance an existing mortgage, buy a car, or invest in a new piece of real estate. It’s important to note that even just a one percent increase in interest rates increases affordability by 8%. This means duplex buyers may see their lending limits decrease, resulting in them being able to pay less for a property than they could when interest rates were lower.
As of now, it appears the Federal Reserve intends to gradually increase interest rates over the course of next year a total of .75%. That would mean a reduction of affordability of 6%.
None of this is a reason to panic. Even after an increase, interest rates will be very low. However, if you want the most bang for your buck as a Minneapolis duplex buyer or seller, you may