Imagine yourself investing in a house with a mortgage rate of 7.25%. You’re over the moon and enjoying your new residence. You look at the space and see how comfortable the house is. You enjoy the interior, new features, and your favorite magazine as you take a sip from your morning coffee, only to read that the Fed is dropping the interest rate. In fact, it already did by 1%, and another 0.25% is projected to go down in the next quarter.
How will you feel about your investment?
Most likely, you will feel excited because you just made a great decision. As the proverb goes, you date the rate and marry the house. It is possible to do a refinance and lower your monthly payment. For example, in San Francisco, when interest rates were projected to increase, there weren’t as many buyers, and motivated sellers were reducing home prices. The borrowing rates haven’t decreased yet, but buyers are starting to shop around because of the projection of lowering interest rates.
I want to help you take advantage of this opportunity that typically happens once every 18 years.
Secure Your Financial Future
Protect your hard-earned dollars. Just imagine the type of investment and savings you can have with a home to live in. There are other times when it is wiser to put that amount monthly in your 401k and have retirement savings rather than owning real estate, but now is not the time.
That’s the importance of mortgage rates. It’s understandable that people postpone buying houses when the interest rate jumps. The crucial part is to understand how the Fed interest rate works.
Why do Fed interest rates go up and down?
Before going any further, let’s understand why interest rates take a deep dive into the ocean and then rise like a tide out of nowhere. Let’s take a look at monetary policy to understand how it happens. Here are three key points:
● What is inflation? Basically, inflation relates to the buying power of your hard-earned dollar. How much can you buy for $1? A high inflation rate reduces your buying power. The cost of living goes up, and things become unaffordable for regular folks.
● The Fed increases borrowing rates to control the economy. The Federal Revenue Board will raise the rate to promote savings and draw capital from the market. People become conservative with their spending. As a result, the demand goes down. Prices for goods decrease as we see more supply than demand. This, as a result, soothes the economy. High interest rates affect the economy as the job market weakens. Businesses need capital to survive. High lending rates make it challenging for business owners to acquire the much-needed capital.
● The Fed decreases the interest rate once inflation is under control. A reduction in borrowing rates encourages economic activity, and we again see a boom in the job and real estate markets.
The factors you need to understand about the housing market
You need to understand a few points before you invest in a house or take out a mortgage loan.
What is the current inflation rate? Is it expected to increase or decrease? Carefully look at the national economic data and reflect on the possibilities. Fed rates will drop when inflation goes down. One rule is not to invest in a house when inflation is going in a crazy direction. Save your money. You can probably earn higher interest rates by putting your funds in a savings account.
Buying a house with a lower mortgage rate
What is the competition in the local housing market? It’s a no-brainer to wait when interest rates are as high as 7.25%. But we can look at another scenario. What if you need to decide between 4.8% and possibly 4.5%? Let’s say interest rates have come down, and you’re wondering whether I should buy a house with a 4.8% mortgage rate. What should be your best course of action?
Talk to a trusted real estate expert in San Francisco. You will need to look at the housing inventory and current competition. Is it a crowded market? Lower interest rates lead to more buying power. More people will try buying homes, and that can change the scenario for you. So if you’re in a highly competitive housing market, it might make sense to lock in the loan at 4.8% instead of waiting for further reductions. However, if you’re in a buyer’s market like San Francisco, you can wait for the rate to go down before signing the final documents.
How does the future look right now?
In 2023, the Fed increased its interest rate to cool down the economy and decrease inflation. Now, inflation has hit 3.4%, which is still higher than the target of 2%. However, it has gone down substantially from the 9.1% recorded in June 2022. It seems like we won’t see any more Fed rate hikes as inflation gradually reduces.
According to one estimate, Fed rates are expected to go down by three-quarter point cuts (expect a range of 4.5% to 4.75% in 2024). It will result in a progressive real estate market in San Francisco. We will see more home sales, especially as we get closer to the spring buying and selling season.
I love helping my clients find the right property in San Francisco. Mortgage rates are a big part of your financing strategy. As your experienced agent, I will guide you through the current rates and market competition. My goal is to help you invest in your dream home at the best price. Contact me for a free consultation (haleysellsthecity@gmail.com) to discuss your next steps.
