Last month, the Federal Reserve cut interest rates for the first time since the 2008 economic recession. The drop of 0.25% was anticipated by real estate salesmen and mortgage lenders around the country.
“The first thing to know is that any effect this rate drop has had has been in effect since mid to late June,” Luke Loiselle of Keller Williams Realty in Vancouver said. “The markets have already been expecting this for a little while so they’ve kind of traded and gotten down to where we should be based on the Fed rate for about a month now.”
Decreases started in November 2018 and have actually decreased by roughly a percentage point.
“Every percentage point we go down has about a 10% effect on the monthly mortgage payment an average buyer would pay,” Loiselle said.
Loiselle used the average price of a house in Battle Ground as an example: $399,000 and a monthly mortgage payment of $2,000. Someone looking to purchase a house with a monthly payment of $2,000 would only be able to afford a $360,00 home before the drop whereas now they can afford a $399,000 home.
“You can afford $40,000 more in home today than you could last year,” he said.
Although on average homes are about 10% cheaper in monthly costs compared to this time last year, Loiselle was sure to note that houses themselves are not getting cheaper, buyers just have more purchasing power now.
Loiselle said home affordability was low last year but he expects the interest rate drop to “turn a bad 2019 into a good 2019.”
“If you’ve been considering buying a home it’s still a great time to do it because of how low-interest rates are,” Loiselle concluded. “If you’re worried about interest rates dropping more, you can always refinance