Every cloud, as they say, has a silver lining – even if that silver lining is a bit tarnished. One good thing to come out of the coronavirus pandemic for homebuyers and homeowners who want to refinance is the recent rate cuts. The Federal Reserve has cut short-term interest rates by 1.5 percentage points in less than two weeks and is making sure that money keeps flowing through the mortgage financing system — all to protect the economy from more damage from the coronavirus pandemic.
But what do these recent rate cuts mean for homebuyers in Boston?
Purpose of the Rate Cuts
The Fed’s two recent rate cuts now have interest rates approaching zero. This is an effort to keep the economy moving forward, especially the real estate sector, in light of the financial devastation wrought by the needed responses to the coronavirus pandemic.
In this case, the Fed was leading rather than following. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook for the foreseeable future, the Fed said in explaining why it had slashed the target federal funds rate to a range of 0% to 0.25%. The idea behind these rate cuts is to stimulate the economy when the worst of the pandemic passes, and people get back to work with full paychecks again.
How the Rate Cuts Impact Mortgage Rates
The Fed is also practicing what is known a “quantitative easing,” which aims to keep money circulating and the economy moving. That’s what lies behind the Fed’s buying at least $500 billion of Treasurys and at least $200 billion of mortgage-backed securities. These purchases are meant to help lenders have available money so they can then lend to homebuyers and refinancers, which might even push rates a bit lower.
The upshot of rate cuts and quantitative easing, along with plenty of time sheltering in place at home, is that rates are low enough to cause a lot of people thinking about refinancing or buying a home to begin that research. But, with rightful concerns with the length of the coronavirus pandemic and the prolonged practice of social distancing, homebuyers may still be reluctant to get out and home shop. A drop in demand, especially in hard-hit metropolitan areas like Seattle and New York, suggests that this is the case. (Side note – many properties for sale are offering virtual tours to help you visualize a property’s interior).
So with low rates and less competition, this is a great time for homebuyers.
The Outlook for Homebuyers
As a homebuyer in Boston, you still need to be aware that inventory remains too low to meet demand. Boston had a housing crisis leading into the coronavirus pandemic, and that has not changed now, nor will it any time soon with the stoppage at construction sites. Even though buyers are practicing social distancing, the rate cuts and low inventory mean that you’ll still be facing competition from other buyers. There’s only so much that lower mortgage rates can do to stimulate home sales. Mortgage rates and affordability aren’t the biggest challenges in today’s housing market. A lack of options continues to be the largest hurdle.
Still, if you want to buy a home in Boston to take advantage of these historic low rates, there are a few things you can do to get an edge over your competition, for example:
- Get pre-approved so you’ll know what you can borrow and be perceived as a serious buyer.
- Don’t be overly demanding with respect to contingencies and concessions.
- People’s lives and schedules have been disrupted, so be flexible about closing.
Is There a Rate Cut Rush?
No, not really. It may seem counter-intuitive, but there really is no urgency to rush out and buy today while interest rates are low. So many people are doing that very thing that mortgage companies are overwhelmed with applications. In fact, experts point out, right now you may not find “those low rates on a prevalent basis because [mortgage companies] are marking up rates to give them a chance to work through the initial wave of demand.”
Here’s what those same experts recommend: “There are many things at play in the economy right now, but the conditions are set for mortgage rates to stay low for the balance of 2020. Once lenders ease the backlog of applications, rates should normalize and that will make for an opportune time to get in.”
Rate Cut Implications for the Housing Market
With mortgage interest rates at historic lows after the Fed’s latest rate cuts, many potential homebuyers in Boston may be willing to shop for their new home, especially now that we are entering the spring market and people have been stuck indoors for some time now.
The financial outlook and the fate of the housing market are still uncertain, according to economy watchers. Monetary policy is not a quick-acting tool. It will be some time before we know whether these actions were sufficient to sustain economic growth, but it’s a large and coordinated move that should put households, the housing market, businesses, and the financial sector on better footing.
One thing is certain, though. Right now is a great time to buy a home in Boston – mortgage interest rates may never be this low again. And there’s another certainty in all this: with low inventory and possible stiff competition, the services of a good local real estate agent have never been more necessary.
An Agent to Help You Take Advantage of Rate Cuts
So do you want to take advantage of this unprecedented opportunity provided by the recent rate cuts? If you want to buy a home in Boston, now is the time – if you can find the home you need. And you may even have to shop online to protect your health. Our agents at NextHome Titletown Real Estate have the experience and expertise to help you under this unique set of conditions. To discover more, contact us today at (617) 657-9811.
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