Fed Rate Cuts and Buying or Selling Real Estate
Written by Jon Long on July 31st, 2020
I’m sure you’ve heard the news that the Federal Reserve recently cut interest rates by 0.25%. From an economic standpoint, this move will have a far-reaching impact, but what specifically will this rate cut mean for buyers and sellers in the real estate market?
I’ll start by saying this move won’t have an immediate effect on mortgage rates. In other words, don’t expect the mortgage industry to suddenly respond with an across-the-board 0.25% rate drop of their own. That’s not to say this development won’t eventually be felt in the mortgage world. Over the next few months, we’ll start to see a gradual decline in interest rates.
What affects interest rates most, though, is investors buying bonds here in the U.S. Economic turmoil in other parts of the world has led an increasing number of foreign investors to purchase our bonds, which has helped drive rates down into the sub-3.5% range.
“When interest rates are lower, buyers’ purchasing power goes up.”
On top of that, American investors are buying up bonds as the potential for a trade war looms ahead. Combine that with the recent federal reserve interest rate cut, and you have a recipe for advantageous market conditions. As it stands, the current rate for a 30-year fixed mortgage is right around 3.5%, but I wouldn’t be surprised if rates fall further in the coming months.
More to the point, when interest rates are lower, buyers’ purchasing power goes up. For real estate sellers, this means buyers can pay more for your home, and when it’s your turn to go into buying mode, you’ll also enjoy greater purchasing power.
If you’re a buyer, do me a favor: Go talk to your parents or grandparents and ask them about the interest rates they’ve paid over their lifetime. My prediction is they’ll say you’d be foolish to pass up this opportunity.
Some are concerned about a market correction that could lead to sinking home values, and while no one has a crystal ball, waiting could cost you. Say a year from now, the property you decide to purchase has dropped in value by $20,000 and your loan amount is for $500,000. A seemingly small 1% rate increase is $5,000 a year.
If you have any questions on the fed rate cuts or would like more information, please feel free to reach out to me anytime. I’d be happy to help!