For months, Denver home shoppers have been waiting for interest rates to go down. Last week, that happened.
On Wednesday, Federal Reserve Chairman Jerome Powell announced a long-awaited half-percent cut to interest rates, bringing the federal fund rates to a range between 4.75 and 5 percent.
The federal funds rate indirectly influences mortgage rates and other borrowing costs, as do other economic factors. The change should help to lower the 30-year mortgage rate, which has already been sliding down toward 6 percent, compared to its recent peak near 8 percent.
Basically, that's big news for people thinking about buying and selling homes.
But what does that big news mean when it comes to affordability for a buyer or profits for a seller? And what sort of advice are real-estate agents giving people about buying and selling? Should you wait and see if the Fed cuts rates more? How will the cut affect home prices?
Denverite spoke to Bret Weinstein, the CEO and owner of Guide Real Estate, for his perspective on the market.
Here are ten things he thinks you should know.
Lower interest rates mean mortgage savings.
A half-percent cut could save you hundreds of dollars when you pay your mortgage each month, Weinstein said. Hoping for those savings is why so many potential buyers have been staying out of the Denver real estate market. Now that interest rates have dropped, many more people may be shopping for homes. Current owners can also refinance to take advantage of lower rates, though it comes with a cost.
Home prices will likely rise in the months to come.
With more buyers in the market, Weinstein said, there’s more competition for a limited number of properties. More demand for lower supply will likely lead to an increase in prices. If interest rates drop again, that trend will likely accelerate.
Interest rates aren’t as low as they were a few years back — and they probably won’t get that low anytime soon.
If you’re hoping for rock-bottom interest rates like homebuyers enjoyed several years ago, you could be waiting a long time. While interest rates are expected to drop over the next year, there’s a good chance they won’t drop that low again anytime soon. Weinstein cautions buyers not to wait for a future he doesn’t believe will come.
“We're not going to see 2 and 3 percent interest rates again,” he said.
If you’re planning on buying, now may be a good time.
For a short window, lower interest rates will still accompany current home prices, Weinstein said. If you want that mix of lower prices (not that they’re that low...) and slightly lower interest rates, now’s the moment to start looking.
The “Golden Handcuffs” are still locked.
The golden handcuffs phenomenon is when a person buys a house with a low interest rate for a low price. Even though their home values have shot up in recent years, high interest rates makes it financially disadvantageous for them to move.
This phenomenon is particularly burdensome for empty nesters who would consider downsizing but learn that doing so would actually cost more than staying put. The drop to 4.75 percent target rates is not significant enough to change that.
“At 4.5 percent, it unlocks the golden handcuffs from these sellers that were unwilling to sell,” Weinstein explained.
If those cuffs are unlocked, the market could be flooded with people looking to move homes, he said. This could also increase the supply of larger homes in particular.
It’s impossible to predict what’s coming. But there are some things real estate agents are banking on.
“We just focus on the facts: supply and demand,” Weinstein said. “What does it look like? How are things moving right now? The one big piece that we can say is that if supply does drop off, and everyone decides to buy, prices are going to go up.”
