With inflation cooling, the Federal Reserve announced on September 18, 2024, that it would cut interest rates by a whopping half a percentage point. It is a big relief for many Americans, including college students, entrepreneurs, and prospective homebuyers, who have been waiting for the right time to take out a loan.
Inside this Article:
Why Now?
Low rates were a boon for this country until about March 2022. In fact, just a year before, in 2021, real estate investors secured a juicy average mortgage rate of less than 3%, a record low. In stark contrast, the "higher-for-longer" interest rate background and ongoing price increases had rendered borrowing increasingly expensive, particularly in 2023, when it reached its highest point since 2000, hitting 8% in October.
Some would-be homeowners have found the recent spike in mortgage rates to be a significant roadblock. Moreover, some homeowners choose not to sell. Those who took advantage of the low credit rates before the pandemic are pleased with their purchases and don't see the need to give up those rates for higher ones, even if they've outgrown their homes. Due to limited inventory and fierce competition among buyers for the few available properties, monthly mortgage payments have been on the rise. The restricted supply of homes has also contributed to the increase in median prices. This was the primary reason most buyers kept their guard up for long.
The good news is that many would-be homebuyers may begin house hunting after months of waiting for interest rates to drop, thanks to the Federal Reserve's decision and the anticipation of more rate reductions.
Why Homebuyers may jump in after the Fed's big rate cut
Since the Federal Reserve has slashed interest rates, numerous compelling reasons exist to buy a house. More specifically, buyers are likely to step in to:
Save Money Let's assume a buyer is interested in purchasing one of the exceptional Santa Cruz homes for sale in October 2023. They would have secured a 30-year mortgage with an interest rate of 8% right away. A 6.15 percent rate is available on the same loan today. In what ways does this affect your financial situation? If you had a mortgage of $427,000, which is near the average price of a house, your monthly payment would decrease from $3,133 to $2,601. This will result in a difference of around $532 each month, which will add up to approximately $191,437. Someone may be asking, "Why wait?"
Fair Competition Despite a notable decline in mortgage rates this year, especially in recent months, they remain inferior to the sub-3% pre-pandemic rates. Thus, many purchasers may reason that they would have less competition by acting now rather than waiting out for other future rate reductions. This is due to the potential to secure a more advantageous offer now rather than postpone it in anticipation of subsequent rate reductions that may never come, or come when other circumstances have already watered down any expected benefits.
What is the reason? Supply remains low. As interest rates decrease, an increasing number of purchasers will surely join the market. This may imply that there may be a substantial increase in rivalry for limited inventories shortly. A bidding war for a limited number of desirable houses for sale may once again become commonplace, resulting in increased prices. Taking action right now circumvents that very real possibility.
Fair Prices Current house prices are increasing, and astute purchasers anticipate little changes should interest rates drop even further, and additional buyers enter the market. As sellers seek to capitalize on the growing buyer market, knowledgeable purchasers or those receiving prudent counsel from real estate experts anticipate higher prices. The current asking prices for Santa Cruz homes for sale, especially in such a competitive market, may feel reasonable compared to what they could sell for in 2025, 2026, or later.
Any savings that novice customers may have thought they would get from an additional 50 rate drop might be more than offset by this possibly higher pricing. The potential opportunity cost of delaying entry is substantial and may prompt purchasers to jump into the market immediately.
The “Best Time to Buy” May Never Come Some potential purchasers hesitated not because they were unprepared to make an offer but because they were sitting on the fence for a while in anticipation of the Federal Reserve's actions and the market's potential trajectory. Many people believed that the Federal Reserve was waiting too long to make the recent move, and the anticipation of rate decreases did not even start to become apparent this year. Anybody looking to purchase a house as an investment might have waited for this moment to strike, and now it has.
Price fluctuations are nothing new in the real estate industry, as seen over the last few years. Nonetheless, real estate values often appreciate with time.
In other words, the future worth of a home often exceeds its current value. For some people, a house is an investment with the hope of reaping a profit when the time comes to sell. In the eyes of some savvy buyers, the benefit of owning a house is that, unlike other assets, you can live in it every day, saving on rent and building equity in it over time!
The percentage of the principal amount that you have paid off determines your equity in a home. What is the significance of building equity? Firstly, you can liquidate it if necessary, either by selling your property or by establishing a Home Equity Line of Credit (HELOC). Instead of going to a landlord, your payments accumulate until you own your property completely. Each month you postpone purchasing a house, you forfeit the chance to accumulate equity in your ideal residence; hence, some individuals may see no need to delay further after FED's first significant rate reductions.
Both equity and increasing house prices are advantages that need time to develop. Delaying a purchase incurs opportunity costs that escalate with each postponement. No one knows when the "optimal moment to purchase" will come. Many purchasers comprehend that we only know the current state of the market; we have no idea how it will change over time, and this is reason enough to see an influx of buyers in the market. It is impossible to precisely estimate when rates will decline or the extent of their decrease. We only know the current state of the market; we have no idea how it will change over time, which is a reason enough to see an influx of buyers in the market.
What Price Changes Can We Expect in Santa Cruz Homes for Sale?
Santa Cruz County has always struggled to provide affordable real estate options. The latest Federal Reserve interest rate cut occurred as mortgage rates began to decline, suggesting a possible short pause in rising prices; nonetheless, caution is necessary. Consult a local, seasoned real estate expert for assistance in navigating this market.
While the rate cuts could make homes for sale in Scotts Valley, Aptos, Felton, or Capitola, CA, more affordable, in competitive regions Westside Santa Cruz, or Pasatiempo homes for sale, an inflow of affluent purchasers capitalizing their deep pockets or other favorable financing circumstances may further escalate prices.
An Advantage for Early Movers (But Likely Short-Lived).
If you're considering jumping into the Santa Cruz real estate market or nearby towns like Los Gatos, this could be your moment. Right now, there's less competition, a rare advantage in an area known for its challenging housing market. Still, this window of opportunity may close sooner than expected.
For example, if you're looking in quieter spots like Felton or Soquel, you currently hold a strategic edge. Ads for properties in these charming towns, with their smaller real estate markets, don't get as much attention as, for example, "Beachfront Santa Cruz homes for sale" or "Los Gatos homes for sale." However, if your delay is too long, you might find yourself in a feeding frenzy as other buyers recognize the lower rates.
Consider a family eyeing homes for sale in Scotts Valley, where suburban tranquility meets convenient access to Silicon Valley. The prospect of a reduced mortgage could finally make their dream home feel attainable. However, with many others thinking along similar lines, bidding wars might once again become common, especially in popular neighborhoods. While the initial impact of the rate cuts might create a brief affordability period, the long-term outlook could see home prices climbing even higher.
By 2025, the competitive landscape could shift dramatically, with prices rising again as demand increases. For now, though, astute buyers may still find a good deal.
Watsonville Homes for Sale: A Budget-Friendly Option May Just Became More Appealing
Watsonville has always been an excellent option for less expensive homes for sale in Santa Cruz County, mainly appealing to families and first-time purchasers who see themselves as excluded from the pricier neighborhoods. The recent decline in interest rates may enhance Watsonville's attractiveness. Families who previously believed homeownership was unattainable may suddenly discover their aspirations are achievable. Reduced rates result in lower monthly payments, allowing buyers to consider larger residences or properties with more acreage—crucial for those requiring additional space.
Nonetheless, Watsonville is not immune to the overarching market trends affecting the larger Santa Cruz area and the influence of Silicon Valley tech workers. As interest in the region grows, expect the local real estate market to become more competitive. What was once a hidden gem may soon see heightened demand, particularly as families from nearby cities like Santa Cruz and Scotts Valley recognize the value that Watsonville homes for sale offer. If you're considering a move, don't wait too long—information about Watsonville is spreading, and as competition heats up, expect costs to rise. Contact us now for help securing a good home for your family in this area.
Is Now the Right Time to Sell?
As interest rates continue to decline, the real estate market is experiencing a surge in motivated buyers eager to take advantage of the favorable borrowing conditions. This presents a unique opportunity for homeowners looking to sell, as the decreased mortgage rates are fueling higher levels of inventory across the market. Consumers are feeling more confident in the overall economic climate, leading to greater demand and activity within the housing sector. However, it's crucial for sellers to carefully weigh their personal and financial circumstances before making a decision. Factors such as job security, future housing needs, accumulated equity, and long-term financial goals should all be thoroughly considered. Consulting with an experienced real estate professional can provide invaluable insights and an objective evaluation of the property's current market value. This guidance can help sellers make informed decisions that align with their individual priorities and position them for success in the transaction. Whether you're seeking to upsize, downsize, or simply capitalize on the favorable market conditions, connecting with a knowledgeable real estate agent can unlock a wealth of opportunities and ensure you navigate the selling process with confidence. If you're contemplating selling your home, I encourage you to reach out to me for a complimentary home valuation and comparative market analysis - this will equip you with the essential information needed to make the best choice for your unique circumstances.
Is Now the Right Time to Buy a Home?
If you are contemplating purchasing a house in Santa Cruz County, the time to proceed may be now. The Federal Reserve's reductions in interest rates have facilitated borrowing, hence providing chances for those who previously saw the market as unaffordable. However, with limited inventories and anticipated intensified competition, delaying action could lead to losing a unique opportunity.
Whether your search leads you to Santa Cruz, Watsonville, Aptos or Felton, it is essential to have your funds organized. Obtain mortgage pre-approval, be prepared to respond quickly, and watch for new listings on your website. Despite the market's challenges, those ready to capitalize on the opportunity will discover that there has never been a more opportune moment to act.
Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise. Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties! | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com |
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