What the Mortgage Rate Drop Means

By: Mark H. Stowers

The real estate market is still hot. Low inventory and low rates combined for a seller’s market for an extended period. The rates started to climb and squeezed out some buyers as they lost buying power. But mortgage interest rates have fallen recently and that’s good news – for both buyers and sellers. Here's what the mortgage rate drop means.

What the Mortgage Rate Drop Means

Lower rates equate as buyers have more buying room to work with. With the market inventory being tight, those extra dollars come in handy to help buyers when bidding over the asking price for homes. Something that was becoming a problem for quite a few buyers.

“What it means to me directly, about four or five months ago, I had about five people completely step back and say, ‘I am no longer interested in seeing a property where I can’t get an offer accepted. Seeing people bid $50,000 over asking price and guaranteeing that amount. I can’t do it,’” realtor John Mahar said.

But with the interest rate drop, those buyers have more buying power to bid over asking.

“These folks saw the interest rate drop and their buying power increased and can go after a property that not necessarily everyone on the market is going for,” he said.

Sellers may think that their home value decreases when the interest rate drops but Mahar explains how it doesn’t.

“The value is the value. People can still cover their note. There’s been no sub-prime lending. There’s been a stay in value. It only increases my buyer’s buying power,” he said. “It puts these folks back looking at houses. It makes buyers actively engaged I the market even if they aren’t buying for 30 days or so. I’ve had at least 50 percent of those folks come back into the market.”

The rate decrease helps both sides as the sellers become buyers once their property is sold. A lower interest rate helps stretch out their selling price on the next home they buy.

“It’s more advantageous to buyers because it gives them more money but it helps the seller because there are more buyers for their home,” he said. “It’s a double benefit.”

Mahar does believe the interest rate will increase again but probably after the Christmas holidays.

“I think there will be an adjustment back up as consumer reports will show there is more money flying around,” he said.