Mortgage Rates are Falling Despite the Increased Fed Funds Rate

2022 investment property mortgage rates

Anyone who has been paying attention to financial markets in 2022 has been witness to a bit of a roller coaster in the last several months. Historically low interest rates at the end of 2021 quickly disappeared as 30-year rental mortgage rates jumped back to levels not seen since before the Great Recession brought on by the 2008 housing crisis. As the Federal Reserve has continued increasing interest rates to mitigate the effects of high inflation, most observers expected that a correlating rise in mortgage rates would occur. But in recent weeks, the opposite has been true. So, why is it that mortgage rates are falling despite an increasing Fed Funds Rate?

Supply & Demand Affects Mortgage Rates

As the basics of economics tell us, price is driven by supply and demand. Mortgage rates are simply the price of borrowing money to finance a home purchase (or refinance) over a period of time. Just like gas prices dropped when demand fell off a cliff in March and April of 2020 as pandemic restrictions kept daily commuters at home for months at a time, demand for 30-year mortgages has dropped significantly as a reaction to inflated housing prices, previous increases in rates, and general economic uncertainty.

Essentially, mortgage rates got to a point where homebuyers and real estate investors determined that 30-year mortgages weren’t worthwhile. This pullback in demand has caused mortgage lenders to lower their rates to generate more demand.

The Role of Treasury Yields and Mortgage-Backed Securities

While the Federal Funds Rate has an indirect effect, mortgage rates are much more closely tied to mortgage-backed securities and treasury yields. As the Federal Reserve continues increasing interest rates, the economy slows down – currently, there are signs of economic weakness and possible recession. This has driven bond yields down, and mortgage rates have followed closely behind them.

These are some early signs that the housing market may be approaching something close to its normal state – higher mortgage rates will keep prospective homebuyers out of the market until housing prices and mortgage rates reach a point at which it will become feasible for both consumers and investors to enter back into the market.

Will Mortgage Rates Continue to Decrease Throughout 2022?

We’ll start this by saying that if we had a crystal ball that told us where mortgage rates would go, we wouldn’t be writing this blog post. Ultimately, there’s no consensus opinion at this time about what’s going to happen with mortgage rates, but all signs seem to be pointing to economic slowdown. Some market observers claim that the United States has entered a recession, while others believe that the economy is only momentarily slowing to correct for inflation brought on by pandemic stimulus measures.

Some analysts believe that mortgage rates will continue to increase as the Fed continues raising base interest throughout 2022 – in that case, now would be a good time to lock in a long-term investment mortgage while interest rates remain at a reasonable level. No matter what happens with mortgage rates, here at Pimlico Capital, we promise we’ll be doing whatever we can to offer low rates on rental property mortgages for all real estate investors.


Looking to purchase or refinance a rental property at a low interest rate? Give us a call at 410-855-4600, or head over to our online rate calculator to see financing options available to you!