By Noah Brocious – President/RI/Mortgage Loan Originator – For the third time this year, the Federal Reserve dropped interest rates; this time, the central bank set target rates to 1.25% to 1.75%. In the FOMC minutes and Chairman Powell’s subsequent press conference, the reason for the drop in interest rates pointed toward a bleaker world economy. However, the domestic economy remained a robust and vibrant indicator.
Okay, but what does that mean for real estate investors?
The way central bank rates go, so do mortgage interest rates. With already near-record-low mortgage rates, the housing market in Phoenix remains highly competitive for buyers. The Valley market is heavily tilted toward sellers with only two months of supply and sustained year-over-year (YoY) price increases.
In the next 90 days following the rate cut, mortgage rates typically fall by the same amount, so economists expect a quarter of a point drop in mortgage rates. While a quarter-point might not seem like a material difference, it adds up over the life of a loan. When you do the math, a quarter of point translates to nearly $10,000 more in purchasing power on an average 30-year, $300,000 mortgage.
In a hot market like Phoenix, this creates an opportunity for real estate investors to use this opportunity to boost their profit margins. Buyers can now afford a slightly larger mortgage, which can give them a slight edge in a competitive bidding war for a home. Fix N Flippers, for example, could price their properties higher, or it could be time for buy and hold investors to cash in their investments through a higher-priced sell.
The Bottom Line for Investors
Whether you are a buyer, seller, or real estate investor, low central bank rates benefit all the players involved. From boosting margins to finding that dream home, the real estate market in Phoenix is hot and will remain so for quite some time.