What the Fed’s Rate Cut Means for Buyers, Sellers and Homeowners
The Federal Reserve announced a second emergency rate cut on March 15 as the U.S. grapples with coronavirus across the nation.
This cut signals that the Fed wants to help stimulate the economy and get ahead of any potential economic downturn in the coming months ahead.
Don’t Be Confused!
It’s important to point out that the Federal Reserve cut the federal fund rate and not mortgage interest rates. This can get confusing for many people!
However, even though these rates are not directly linked to each other, any movement in the federal fund rate can impact mortgage rate fluctuations.
The Federal Reserve sets the short-term rate for the overnight exchange of money by banks (i.e., banks borrow from one another). The Fed will adjust this rate depending on the outlook for the overall US economy, which is why it enacted this second emergency cut.
What It Means for You
For buyers — After a dip a few weeks back, now 30-year fixed loans have been hovering around 3.7%, and mortgage rates could dip a bit more in response to the Fed’s cut of the fund rate. Rates might not be as low as they were a week or so ago, but we are still very much experiencing historically low interest rates.
That means buyers could have more purchasing power or lower monthly mortgage payments for the same price point on a home. Remember that with every dip in mortgage interest rates, buyers can get more home for their money.
Having more purchasing power as home prices increase can mean the difference between affording a home in a specific area of the DMV or not. Or, being able to now look at single-family homes rather than townhomes or condos.
For sellers —The drop in rates could lead to lower mortgage interest rates for buyers, which could influence them to stay in the market and continue to look for a new home. If you were planning on selling your home this spring, your listing would attract committed buyers who are ready to purchase.
Obviously with the social distancing we are currently going through, we are taking a week-by-week approach to whether it’s best to list now or hold off for a few weeks or months. Reach out to discuss your specific situation and be sure to plan ahead right now.
For homeowners who aren’t going anywhere — For current homeowners who aren’t looking to buy or sell anytime soon, you could also benefit from lower rates:
- Refinancing – Now could be a good time to refinance your current mortgage with a lower rate, helping you save on your monthly mortgage payment.
- Adjustable rate mortgages –If you have an adjustable rate mortgage, you could see a decrease in your payments when the loan resets next.
- Home Equity Loan — If you’ve been planning to do any repairs or a major renovation to your home so you can stay for years to come, now could be a good time since your interest rate on a home equity loan could be lower.
Looking Ahead and Helping You Plan
Let’s keep an eye on the economy as a whole in the weeks ahead and as our nation deals with the coronavirus. We are always here no matter what to help you make sound and good real estate decisions.
We’ve been helping our buyer and seller clients make good real estate decisions since 2002, and in every high and low market since then. We know how to navigate uncertain times, so be in touch to strategize the best options for you right now, as a buyer, seller, or a homeowner.