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  • Fed rate cut delayed and why this may be great news for buyers

    Saturday, February 24, 2024   /   by Amy Brown

    Fed rate cut delayed and why this may be great news for buyers

    The latest news from our friends at Movement Mortgage say that the Feds have changed their minds on cutting rates this Spring. While this may seem disappointing to some, here's why this could be great news for buyers as they return to the real estate market.

    From Movement Mortgage:

    February’s trend toward higher rates continued this week, as the notes from the January FOMC meeting and comments from Fed officials made clear that rate cuts aren’t imminent. The minutes from the January meeting showed that many participants felt that there was greater risk in easing too soon versus waiting for a few more months of inflation data. Comments this week from Federal Reserve officials also suggested that a few more months of economic data is needed to confirm that cuts are appropriate. The economy is proving to be resilient, and the recent strong economic data is reducing the urgency in cutting rates. A rate cut at the March meeting was already priced out of the market, and now cuts in May are also seen as unlikely. The current consensus view in the market is for 4 cuts in 2024, starting with the June meeting.
    While it is important for homebuyers to stay informed of the upcoming rate expectations, it is advised that they don’t delay a purchase in expectation of a future rate drop. In fact, it could be advantageous to buy now.

    Increased Competition is Coming and Could Mean More Expensive Homes

    Lower interest rates will cause a lot of people to compete for the same house. These lower rates allow buyers to qualify for more, which means they can afford to put in higher bids for the home they want, thus driving up home prices even more. Inventory is expected to remain tight, "demand will probably exceed supply similar to current conditions,” and “supply is likely to remain below what we would deem a balanced market," says Chen Zao, Economic Lead at RedFin. 

    These factors could lead to a sharp increase in home prices. In fact, an AEI housing market indicator report revealed they believe homes are expected to appreciate 7% in 2024.

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    Let's take a look at the math:

    A $500,000 home at today's interest rates for a 30-year conventional mortgage with 20% down and estimated property taxes of $1600/year and homeowner's insurance of $600/year = $2,634.40/month

    That same home with the same parameters now has multiple offers...

    The price is driven up to $535,000. Your monthly payment is now = $2,818.81/month. 

    However, if that home stays at $500,000 and the interest rises to 7% with the same taxes and insurance, the payment increases to only $2,661.21/month. 

    For every .1% in interest rate, you can expect to pay $26.81/month. But for every $10,000 rise in price, you can expect to pay $53.22/month. 

    Amortized Amount

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    For a $500,000 at 6.9% interest, you can expect to pay $548,384.19 over the life of the loan in interest payments for a total home price if you kept it for 30 years of $948,384.19.

    For a $500,000 at 7% interest, you can expect to pay $558,035.59 in interest over the life of the loan for a total home cost of $958,035.59 in 30 years.

    For a $535,000 at 6.9% interest, you can expect to pay $586,771.08 in interest for a total home cost of $1,014,771.08 over 30 years. 

    DO YOU SEE NOW WHY INTEREST RATE IS NOT AS IMPORTANT AS PRICE?

    Buy NOW, before competition raises the price, further lowers inventory, and COSTS YOU MORE!

    For an easy amortization calculator that you can use at home, click on the following link: https://bit.ly/3wveW2d 

    We are here to help! Call now and let us help you find your next home.