Buying a house? Thank the Fed for its recent rate cut
Economists can debate whether the Federal Reserve’s decision yesterday to cut its target interest rate to nearly zero is a move that will ultimately help the nation fight through its recession.
But there is little debate that the move will help anyone buying a home.
Following the Federal Reserve’s move, commercial banks quickly cut their prime lending rates by three-fourths of a percentage point to 3.25 percent. That’s the lowest this key rate has been in more than a half century.
This means that anyone looking for a home can expect even lower mortgage interest rates in the near future.
For months, real estate agents have been promoting the fact that this is a great time to buy a home. They’re right … if you don’t have a home of your own to sell first. Look at the evidence: Housing prices in most major metropolitan areas have dropped significantly. Sellers are desperate enough to be open to negotiations, and are willing to make repairs, cut their asking price, rework their closing dates or pay for buyers’ closing costs, all in the hopes of finally selling their homes.
At the same time, the housing market is clogged with homes for sale. This means that buyers have their choice of prime properties from which to choose.
This is a far cry from the housing market of 2001 through 2006, the period that real estate agents fondly look back on as the “housing boom.”
During the boom, sellers held all the advantages. They frequently juggled multiple offers on their properties. They often sold their homes for more than their asking price. And properties often sold within days of coming on the market. Sellers rarely had to consider updating or renovating their homes to get them to sell.
The housing market has now become a buyer’s market. Problem is, unless you’re a first-time buyer, the odds are that you’re trying to sell your current home at the same time you are purchasing a new one. So while you are benefitting from the buyer’s market on one end of the transaction, you’re suffering from it on the other end.
And this is why the buyers haven’t come out in droves to take advantage of the favorable conditions for purchasing a home.
