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What Buyers and Sellers in the Washington, DC Area Need to Know About Lower Interest Rates
If you’re planning to buy or sell a home in the Washington, DC area, the talk of rates finally coming down might have you feeling a sense of relief. And with good reason—interest rates have a big impact on everything from your monthly mortgage payment to how quickly your home sells. A couple years ago, consumers thought 4% was high for an interest rate. We capped out at over 8% in the last 12 months but there is something to be hopeful for. Interest rates have come down nearly a full point in the last month and the Federal Reserve has mentioned about lowering it even more. This all sounds great, but you are likely wondering what this means. I'm going to break it down further for you.
What Are Interest Rates and Why Do They Matter?
Interest rates are the cost of borrowing money. When you take out a mortgage to buy a home, the interest rate determines how much you’ll pay to borrow the actual money needed to purchase a home. Rates go up and down based on what’s happening in the economy. When the Federal Reserve raises interest rates, it’s usually trying to slow down inflation (we've heard a lot about that the last few years). On the flip side, when it lowers rates, the goal is to boost the economy.
We are starting to see inflation finally come down and signs the economy is improving. This doesn't mean we won't see rates go back up again but for now, it looks like rates will come down.
How Dropping Interest Rates Affect Homebuyers in the Washington, DC area
With rates coming down over the last month, we are seeing more signs of promise. The end of Summer is not typically a very busy time in real estate so sales activity hasn't dramatically spiked as a result of this change. Rates are the lowest they have been in more than a year. We can expect to see more activity in the coming weeks now that everybody is back to their daily routine of work and school. Lower interest rates should fuel this frenzy further.
• Lower Monthly Payments: When interest rates drop, so does your mortgage payment. Even a small decrease can add up to thousands of dollars in savings over the life of your loan.
• More Home for Your Money: Lower rates may mean affording more house than you would have just a couple months ago. This could be the difference between moving to one neighborhood with houses that have only a few of your wishlist items, versus moving to a neighborhood that has all the features you want in the location you want.
• Timing Is Everything: Be ready to start looking as soon as possible. Lower interest rates can create a frenzied market with higher buyer demand. This means more competition and the potential for bidding wars.
How Dropping Interest Rates Affect Home Sellers in the Washington, DC area
If you’re selling your home, interest rates can affect how quickly you sell your home and the price you get.
• More Buyers: When mortgage rates go down, affordability goes up and so does buyer demand. Expect more buyer activity and offers without contingencies and over the list price.
• Spike in Inventory: Many sellers have been waiting for interest rates to come down before they sell their current home and buy their next one. Many sellers have interest rates in the 3s and 4s and are not in a hurry to sell their home and then turn around and get a loan at more than twice that rate. While rates may not be in the 3s and 4s, it gives sellers hope that their new home's mortgage payment may not be twice as much as what they have now and now they may be ready to put their home on the market to capitalize on more buyer activity.
• Pricing Matters More Than Ever: With more buyers, pricing your home properly remains as important as ever. If you price too high, your home could sit on the market, and you might end up having to lower the price anyway. Working with a realtor who knows the Washington, DC area market is key to getting this right.
• Consider Selling Sooner: If you’re thinking about selling, it might be wise to do it sooner rather than later. While rates are coming down, there is no way to perfectly time the market. Political or financial changes and disruptions can quickly change economic factors that spur market activity.
What ShoulD YOU DO NEXT?
• For Homebuyers: If you're ready to start getting serious, speak with a realtor about next steps including getting a pre-approval. Work up the numbers and make sure to do your due diligence that you’re making the best decision for your budget.
• For Home Sellers: Talk to your realtor about current market activity and get recommendations on how to improve your return as well as where the sales indicate your home value to be.
The Big Picture in Washington, DC
The Washington, DC area real estate market remains strong. The area’s booming job market and constant demand for housing mean there’s always activity. This area remains insulated in large part from activity seen in the rest of the country. It's important to assess your current situation to see if buying or selling makes sense now. It never hurts to weigh your options and be prepared when the time to make a move comes. By staying informed and working with an experienced professional, you can navigate these changes with confidence.
Posted by Zach Lipson on
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