Interest rate drop pivotal to residential realty health

As Federal Reserve interest rates stabilize, the real estate market continues to feel the effects.

On Oct. 26, the average 30-year fixed-rate mortgage across the country peaked at 7.79%, said Ron Shuffield, president and CEO of Berkshire Hathaway HomeServices EWM Realty, “and then it started gradually dropping as we got into December … they started dropping a little bit faster.

Between Oct. 26 and Dec. 28, they dropped a full 1.18%.”

The drop in interest rates affects monthly mortgage rates.

“It [the Federal Reserve interest rate] affects how much your monthly mortgage payment is,” said Mr. Shuffield. “When you’re getting a 30-year fixed rate mortgage, people are very aware that if they stay in their home for 30 years, then they get the benefit of saving … for 30 years. Most people don’t stay in a home for 30 years, but even if you stay there for 10 years, it’s still significant savings.”

The mortgage savings from October to December, due to interest rates dropping, begin to add up as years progress. However, buyers find themselves comparing current rates to the lows of January 2022.

“This gets people very happy and excited to see,” said Mr. Shuffield. “The rates have dropped by 1.18%…. A lot of people still want to say ‘but I could have gotten a rate of 3%’…. If you go back Jan. 6 of 2022 the rate was 3.22%…. We went from 3% rates in January of 2022, 2 years ago, to January of 2023 rates got into the 6% [range].… They were increasing during that point, and then they got into the 7% ranges throughout pretty much August, September, October. All those months, the rates were over 7%.”

“Now we’re going back down, and the reason that they’re going back down is because the Federal Reserve has indicated that they’re not going to increase rates further to fight inflation because inflation is getting out of control,” he said. “In fact, they’ve even hinted at the fact that they might even reduce the rate into … [this] year. That’s what’s prompting a lot of these lenders to lower their rates right now.”

More professionals in the field have seen the impact these rates have had on consumers.

“It [interest rates] has had a dramatic impact only because we were so low,” said Henry Torres, CEO of the Astor Companies. “People are so used to having mortgage rates in the low 3%, now we’re doubled that, so it’s having a tremendous impact on what people pay on a monthly basis; some people just can’t afford it. It is having an impact, no question about it.”

The interest rate’s effect this year is still to be determined.

“Last year, they [interest rates] went up a lot,” said Ben Jacobson, private real estate lender at Forman Capital. “…They’ve said that they’re going to reduce them several times in 2024, so that’s the…