Mortgage rates were lowered again this month, bringing the cost of buying a home down to what many economists have declared a historic low. This news comes at a time when the real estate market is gaining momentum entering 2020.
What exactly does a low interest rate mean for prospective home buyers?
For those who act fast, locking in this low interest rate can have a significant impact on monthly mortgage payments. For example:
• Buyers who could afford a $1,879 monthly payment in Q4 2018 can now afford a $410,000 mortgage, increasing their buying power by $60,000.
• Buyers who can only afford a $1,599 monthly payment could only afford a $298,000 in Q4 2018, increasing their buying power by $52,000.
Overall, the lifetime cost of a $350,000 mortgage with current rates is reduced $100,000 from what it would have been in 2018.
With this shift in interest rates and subsequent increase in buying power, the housing market is now wide open to buyers, many of whom previously might have been unable to even purchase a home in late 2018 or early 2019.
Seizing the Opportunity
Potential homebuyers are taking advantage of this perfect storm of conditions, and mortgage applications surged by more than 30 percent during the same timeframe that rates decreased. So, although Reuters reports that the U.S. Federal Reserve is likely to keep interest rates “on hold” throughout 2020, the steady stream of buyers has the potential to drive up home prices and lead to the stabilized market that the Federal Reserve seeks to create. And if these conditions persist, then interest rates could be raised again, meaning potential home buyers will again have less purchasing power than before.
For the time being though, the window of opportunity is open making it an ideal time to purchase a home. The key is benefiting from the opportunity before the window closes.