The Federal Reserve’s Gift to Summer 2019 Home Buyers (Sellers, Too)

Booster Shot for Housing Market

“10-Year Treasury Yield Falls Below 2%, Defying Expectations.”

—Wall Street Journal headline (6/20/19).

Thanks to diving interest rates, the housing market is getting a booster shot during a time of year (mid-Summer) when things customarily start to slow down a bit.

How dramatically have rates fallen?

In just six weeks, 30-year mortgages have dropped almost 75 basis points, from close to 4.5% to 3.75% — and may be headed even lower.

Purchasing Power Boost

That drop may not sound like much, but it translates into a surprisingly hefty pop in Buyers’ purchasing power.

That’s because most home buyers use borrowed money — called a “mortgage” — to finance their purchase.

So, with rates at 4.5%, a prospective home buyer looking for a $400k home with 20% down (= $320k mortgage) could expect to pay just over $1,600/monthly in principal and interest on a 30 year mortgage.

By contrast, if rates drop to 3.5%, that same $1,600 payment now supports a $360k(!) mortgage.

Result?

That $400k buyer now can afford a $440k home.

The only catch for Buyers: their competition benefits from the same financial windfall, increasing demand for homes  . . .  and ultimately benefiting Sellers.



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