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Carpe Diem; Interest Rates Are Consistently Dropping, Buyers Have Unique Opportunity to Purchase Houses They Could Not Afford Otherwise

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Friday December 28, 2018
Carpe Diem; Interest Rates Are Consistently Dropping, Buyers Have Unique Opportunity to Purchase Houses They Could Not Afford Otherwise

        It’s almost 2019 and Santa doesn’t only give presents to well-behaved children, he also provides holiday cheer for people interested in buying and selling property; this year at least. In Santa’s latest gift, mortgage interest rates were further reduced, representing a continuing pattern of decreasing rates; this is fantastic news for real estate. A lowered interest rate means a lower total cost on home loans. Lower total home loan costs, in turn, mean houses are more affordable. Just in case you don’t see where we are going with this, more affordable homes mean more home sales – everybody wins.

        Unless you have been living under a rock, you are likely aware that the Fed has been increasing interest rates to keep the U.S. economy from overheating, mortgage interest rates appear to be going in the opposite direction. As of December 27, 2018, interest rates dropped .07% from 4.62% during the week of December 20, 2018, resting at 4.55%. To put this in perspective, a single percentage point increase in interest rates translates in an additional $100 per month on a $300,000 home. Living in Los Angeles, a single percent increase in interest represents at least $200 more a month in payments. If we look at a standard 30-year mortgage with a fixed rate, a single percentage point could represent an additional $72,000! All of this is a long-winded way of saying that interest rates going down is far more valuable than most people understand.

        It is important to note that this pattern of reduction is unlikely to continue this way. Interest rates are usually positively correlated to rate increases by the Fed; the Fed plans on raising their rates twice more in 2019. As such, it is in a buyer’s best interest to begin looking at houses and locking in loans prior to the Fed rate hikes.

        At the Chernov Team, we take pride in understanding all things real estate. This includes following the national economy, which requires keeping a thumb on the pulse of the Fed’s behavior, as well as interest rates on loans. As it stands, now is an excellent time to buy; the rates are unlikely to stay this low forever. At the Chernov Team we understand that whoever shows up to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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