Mortgage rates have been all over the map for the past week, since the Fed’s .75% drop in the Fed funds rate. Today, I checked mortgage rates at Schwab (yes, Schwab Bank does mortgages). The 30 year fixed conforming (less than $417,000) was 5.596% and the 15 year fixed conforming was below 5%, at 4.943% with 0 points. (Note: these are rates, not APRs that take into account application fees. I tend to look at Schwab for rates, because they’re one of the few lenders online that quote rates without points, even though almost all lenders offer 0 point loans.)
Market watchers anticipate that the Fed will cut interest rates again at its meeting this week, which could translate into even lower mortgage rates. (Note that the Fed rate cuts apply to short term rates, and mortgage rates are tied more closely to the 10 year Treasury, so a half point Fed cut doesn’t mean there will be a half point drop in mortgage rates, but a Fed cut will likely mean some drop in mortgage rates.) Its possible that we could see the 30 year fixed conforming rate drop into the 5 1/4 to 5 3/8 range in the very near future, with the 15 year falling below 4 3/4%.
Its going to be interesting to see if lower rates will stimulate the real estate market. One thing I’ve been seeing lately is negotiations for homes here stalemating with relatively small gaps between buyers and sellers. If money is 10% or 15% cheaper than a month or two ago, which translates into lower carrying costs, will that motivate buyers to ‘bite the bullet’ and make the deal, even if its a little more than they were hoping to pay?
As an aside, I’m buying a studio coop in the Bronx. I went into contract for it about 6 weeks ago and went the route of a studio rather than a one bedroom because I was nervous about the market, didn’t want to spend a lot, and decided to pay cash. But I have to say that if mortgage rates had been down around 5%, rather than above 6%, I probably would have sprung for a larger, more expensive apartment and gotten a mortgage. There are two important cost factors in real estate — the cost of the real estate itself, and the cost of the money to buy it. Buyers have been focused on the real estate side, holding out for bargains. But the big bargain may be on the money side.