On Wednesday, the Federal Reserve cut interest rates by half a percentage point.
Implications ripple across the economy. One of the most significant areas is real estate.
In Westport, that’s always a lively topic. “06880” asked our friends at KMS Team at Compass what the news means for home buyers. They say:
According to to Lawrence Yun, National Association of Reatlors chief economist, much of the rate cut had already been factored into existing mortgage rates.
However, he said, “due to already low mortgage rates compared to spring, the purchasing power for home buyers has been lifted by around $50,000 for those with a $2,000 monthly mortgage payment budget. Consumers who were priced out due to earlier higher mortgage rates could now be back in the market.”
For those buyers still in the looking phase, this offers an opportunity to reach just beyond their target range, perhaps opening up a new selection of homes to consider.
Let’s say buyers set a price range between $1 million and $1,149 million. Today, that search in Fairfield County shows 35 properties.
Simply changing the upper end of the range to $1.2 million brings 62 homes to consider.
In Westport, a search range of $1.5 million to $1.649 million returns just 2 homes on the market. Increase the range to $1.7, and now there are 6 homes.
The Federal Reserve’s rate cut puts this 3-bedroom, 2-bathroom, 2,304-square foot home on 1.41 acres at 163 Cross Highway in the range of buyers who might not have afforded it otherwise. It’s listed for $1.699 million.
For buyers who have already identified a property to purchase but have not locked into a mortgage, the potential savings are a bonus.
One client, looking at a 5-year adjustable rate mortgage, received a quarter point reduction in the rate overnight.
While this amounts to less than $100 a month on a $500,000 loan, it is not insignificant. If just half that amount were applied as extra principal payments, the borrower would save more than $24,000 over the life of the 30-year loan — and finish paying the mortgage off 15 months sooner.
The Mortgage Research Center offers a great calculator, for playing with the numbers.
Most importantly, the rate cut is a psychological signal for nervous home buyers that things are looking up.
The idea of “dating the rate and marrying the home” — refinancing when rates drop — is unfamiliar to many first-time home buyers. And why not? This is the first rate cut in over 4 years.
(Real estate is of prime interest for many Westporters. “06880” covers the topic often — along with so much else. If you like our work, please click here to support this hyperlocal blog. Thank you!)
