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How the Coronavirus Impacts Interest Rates

The coronavirus has caused interest rates to fall even further in our market. 

Today I’m joined once again by Jean Diaz of Movement Mortgage to talk about some current events in our real estate market, specifically, the coronavirus’ impact on interest rates. 

The Federal Reserve dropped the federal funds rate by 50 basis points recently, and it looks like that will happen again, but how does this affect interest rates? 

They’re extremely low at the moment—the lowest we’ve seen in 10 years. A month and a half ago, they were hovering between 3.875% and 4%, but since the federal funds rate was dropped to stimulate the economy, they’ve been dropping further. Experts say rates for 30-year mortgages could even fall below 3%. This means if your purchasing limit a month and a half ago was $200,000, it’s now between $220,000 and $250,000. 

Experts say rates for 30-year mortgages could even fall below 3%.

As you can see, mortgage interest rates and the federal funds rate aren’t the same thing, but the latter indirectly impacts the former. After the federal funds rate dropped, it became cheaper for banks to borrow money and for buyers to buy a home. 

When money flows out of the stock market, it flows into mortgage-backed securities, which is what lowers mortgage rates. In other words, when the stock market drops, interest rates drop. The federal funds rate is more closely tied to commercial mortgages with short-term notes. 

The bottom line is, buyers have a great opportunity to get into a nicer home now than they could before. 

As always, if you have questions about this or any real estate topic or are thinking of buying or selling a home soon, don’t hesitate to reach out to me. I’m happy to help.

 

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