In fall of 2018 we saw a minor “shift” in the marketplace. I’m not a fan of the word “shift” as it’s become a cliché and in the Boston market, all that means is some semblance of a transition back to less of a heated seller’s market and more towards equilibrium.
I do believe a big factor which led to this temporary shift was the interest rate climate. In my career of over 16 years, the lowest level I’ve seen on a 30 year fixed rate which we’ll use as our benchmark is 3.50%. Interest rates this past fall rose to roughly 4.75-4.875%.
As we began to enter 2019 rates began to drop…and drop…and drop. The Fed recently announced their plan to curtail any further rate hikes for the foreseeable future and what happened, rates dropped yet again. In the past 90 days to begin 2019 rates have declined from the 4.75% level down to 3.875%, nearly 1%!
To equate this to dollars and cents, let’s take your typical $500,000 loan amount. At 4.875% the principal and interest payment is $2,608. This figure drops to $2,351 at 3.875% saving the homebuyer over $250 each and every month or over $90,000 over the life of a 30 year mortgage. Another way to look at it, is that the drop of 87.5 basis points in interest rates increases borrowing power by over 10%! That same homebuyer could now increase his/her purchase price from $625k up to $687k.
Now that interest rates are nearing the lowest levels in history, the biggest question is how long will they stay this low!?