The Fed finally cut the prime interest rate! Does this mean everything will go back to “normal?”
Sadly, no.
Some things will definitely get better, yes, and for that we’re super glad (so are our Paychecks)! The lower interest rate will benefit pretty much everyone, but it definitely helps current homeowners more than renters.
Here are Five Fast Facts On Why The Recent Rate Cut Won’t Close The Housing Wealth Gap:
- 👀 Where We Are Now - Home prices are up over 50% since 2019. The 30-year fixed rate is down to 6.2% from a decades-old high of about 7.8%.
- 👍👍 For The Win - If you’ve had a mortgage from the early days of the pandemic, you’re probably clutching onto that rate until it’s pried out of your cold, dead fingers. As you should! For those folks, you’ve got great opportunities to pull equity out to pay off debt, renovate, or whatever else you feel like. Way to go, you winner, you!
- 👍 Mostly Winning - If you did lock in a rate at the peak, now might be a good time to refinance and get some relief. It’s not quite as good a deal for you as it is for the first group, but it’s still a win. To that point, refinance applications have doubled from a year ago. Start your hand exercises now so you won’t cramp up while signing your initials 4,592 times!
- 😣 Moderate Suckage - If you’re looking for a home now, the lower rate is a step in the right direction. While it’s not the golden days of 2-3% that we saw a few years ago, historically speaking a 6-7% rate isn’t terrible. You know, like how a sprained ankle is quite as bad as breaking a bone, even though you still can’t walk right.
- 😭 Sucks To Be You - The biggest problem for renters looking to buy a home is the market condition right now - people weren’t selling and moving like normal over the past few months, so home prices are still high and inventory is still limited. Higher insurance costs don’t help, either. So, while the rate cut makes buying a home slightly less unrealistic, it’s still unrealistic for many people.
🔥Bottom line: Let’s be clear: we’re glad the Fed finally brought the rate down. It’s a good thing for a lot of people, and a step in the right direction for a lot more. But it’s just a single step in a process that has a long, long way to go before a lot of people who have been priced out of the home market can get back in.
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