Fed Interest Rate Drop To Affect Home Buyers
A Fed rate cut is expected this year, some say it might happen as early as July 31. With lower mortgage interest rates, buying a home will become more affordable. If you’re looking for a new home, you might want to wait for these rates to dip some more or buy soon before home prices get any higher. Rates are already at historic lows, so if you are in a good financial position and an opportunity comes up, you may want to pull the trigger.
Why is a rate cut expected?
A new report from Redfin suggests that the Fed will likely lower interest rates before the end of the year. There are many factors behind this expected cut.
“Many people are speculating that a Fed rate cut will occur in the face of trade tensions with China and Mexico and due to the risk of low inflation,” says Daryl Fairweather, chief economist at Redfin.
There are other reasons involved, too, says Ralph DiBugnara, president of Home Qualified.
“Over the last couple of years, we have had a backlog of buyers due to a shortage of homes for sale. So, when rates started to rise at first, it didn’t have a huge effect. This was because so many buyers were still ready to buy,” DiBugnara explains. “But with a combination of higher rates, new tax laws, and more inventory, the Fed’s policy of raising rates was stalling the market and economy even further.”
A Fed rate cut would help “get the market back to more preferred levels,” adds DiBugnara.
How does a rate cut affect home buyers?
A Fed rate cut creates a domino effect. If the Fed cuts interest rates, banks will lower their prime rate. Of course, that means mortgage rates, car loans, etc. will become easier to obtain because it’s cheaper to borrow. This floods credit into the economy.
With a Fed rate cut, it’s easy to assume that home sales will increase.
What should you do?
All of this speculation brings up a very reasonable question: should you buy now or wait until rates drop further?
“When it comes down to it, the best time to buy a home is when you’re ready. If you find a home that you love and current rates make it financially sensible to do so, then go for it,” Fairweather recommends.