Fed Lowers Rate, Sparks Hope of Another Mortgage Rate Drop

SACRAMENTO (CBS13) - The Fed lowering the interest rate is a welcome sign in a slowing market where lower rates may open doors for potential buyers and current homeowners.

What the Fed does impacts short-term rates -- things like credit cards and home equity lines of credit. But it often has a ripple effect on mortgage rates, lowering already historic rates even more.

Real estate broker Barbara Lebrecht works with a lot of first-time homebuyers. She says every penny counts.

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"I think a lot of times you have cusp buyers. If they could just afford $50,000 more, it might move them into that better school district, that extra bathroom, or maybe the yard with the pool," said Labrecht.

When she got word the Fed had cut rates again, she was hopeful.

"I think any time someone starts talking about the federal interest rates, there's always a flurry of activity," said Lebrecht.

That's because it could lead to a drop in mortgage rates, which can save buyers hundreds of dollars each month. Here's an example: When interest rates were 4.63 percent in 2018, the mortgage on a $400,000 home was $2,058. This year, when rates dropped to 3.53 percent, the payment went down to $1,803. And if rates were to drop down again to 3.25 percent, it would go down to $1,741.

Real estate analyst Ryan Lundquist said, "If you were doing a loan of $400,000, saving $200 this year would effectively help you purchase a house that's about $40,000 more."

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Lundquist says those with a home equity line of credit will see savings and the refinance market could see an impact as well.

"When we do see mortgage rates go down. It's like injecting a steroid in the market," said Lundquist.

It could be a much-needed shot in the arm as real estate sales head into the slower months. But Lebrecht reminds buyers to buy for the right reasons.

"People often ask me, 'should I buy a house because of a low interest rate?' I say 'no. you should buy a house because you love it. Because you're going to keep the house a lot longer than you keep the interest rate,'" said Labrecht.

The average price of a home in Sacramento County is $385,000 and $430,000 for the region.