Bay Area house hunters can now afford much more house than they could just a month ago — and with the Federal Reserve’s aggressive rate cut announced Wednesday, their buying power could grow even more.
The buyer of a median-priced Bay Area home in August at an interest rate of 6.47% could today, with rates at 6.09% and the same budget for their monthly mortgage, buy a home priced $51,187 higher. If mortgage rates fall further, to 5.50%, that same buyer would have $136,239 more buying power than they did in August — that’s all assuming a 30-year fixed-rate mortgage with a 20% down payment.
Whether that additional buying power actually allows house hunters to spend on more expensive homes depends on several factors. It’s possible that further rate cuts would motivate more buyers to jump into the market, increasing demand and pushing prices up. Rather than allowing them to buy larger or more desirable homes, buyers may have to use that newfound buying power to simply increase their offer price.
It’s also not certain that the Fed’s rate cuts will actually translate into lower mortgage rates. Normally, the Fed’s rate cuts allow banks to borrow at lower costs, which in turn allows them to offer lower mortgage rates to their customers.
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But mortgage rates don’t always follow interest rates directly — and in some cases, they may even be ahead of the curve. That’s what real estate experts say is the reason for the rates on the 30-year fixed-rate mortgage coming down in recent months from their May high of 7.22%.
“Lenders have been baking this rate cut into their mortgages all year,” said Tim Yee, a real estate agent with ReMax based in San Jose. “People had been waiting for the interest drop all year, and it took nine months to happen.”
Keeping in mind all of that, this chart can help buyers understand how their monthly mortgage payment on a median-priced home in each of the nine Bay Area counties might change based on interest rates — and how much further their dollar can go now than it did at the beginning of August.
