Fed’s Rate Cuts Will Help Home Buyers

Mortgage Rates have dropped to near 3-year lows and only adds incentive to the already flourishing housing market. Wednesday the Federal Reserve cut interest rates for the first time since the downfall in 2008. The federal fund rate (the rate the banks charge on another for short-term borrowing) will now stay between 2% and 2.25%.

“These low interest rates will partly help with housing affordability over the short-term. Both rents and home prices have been consistently outpacing income growth. The only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market,” adds Lawrence Yun, chief economist for the National Association of REALTORS®.

According to Yun those that will see a benefit from the Fed’s move will be types of financing other than the 30-year loans. The 30-year loan is already at a low 4% making the rate change cause very little difference in mortgage savings. Those with adjustable-rate mortgages and commercial real estate loans will most likely see the major benefits.

The change will help home buyers with the rising home prices. A buyer who can spend $1,500 on a monthly mortgage payment can now afford a purchase price of $402,500 instead of the $367,500 home price with last years rates.

“Last year, buyers would have needed an additional $145 a month on top of the $1,500 to afford a $402,500 home,” says Danielle Hale, realtor.com®’s chief economist.

This is great news for today’s home buyer. There are some parts of the country where this decision will give a buyer an extra $35,0000 in purchasing power. With home prices up 6% nationally that increase in purchase power will help keep the threat of another economic downturn.

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