The Fed decision to lower interest rates will undoubtedly have an impact on the Bay Area real estate market. The move will encourage both potential home sellers and buyers to take action.
Claudia Viek has lived in the Bernal Heights neighborhood of San Francisco for about 50 years.
Her 74-square-meter house, which is actually two interconnected earthquake cottages, has been her home for the past three years.
“I’m very happy here, but now it’s time for a bigger home,” Viek told CBS News Bay Area.
She wants to sell her house and buy a bigger house for her son and daughter-in-law to move into.
“It’s actually been hard. I’ve been looking for seven months, and there’s not much inventory,” she said.
But now, after learning that the interest rates fell by half a percentage point due to the Federal Reserve She hopes for some more relief at the market on Wednesday.
“I hope it motivates more people to put their house on the market, so I have something to look at,” says Viek.
This is the first cut by the Federal Reserve in four years, bringing the rate down to somewhere between 4.75% and 5%. Previously, it was somewhere between 5.25% and 5%.
“Realistically, I think we have a long way to go before we get to the point where buyers are really interested,” Cameron Platt, broker and owner of Abio Properties, told CBS News Bay Area.
He said while this is a good starting point for the economy, it comes at a price for homebuyers in the market.
“With this expected decline, I think it hurt the market a little bit because people were kind of sitting on the sidelines waiting for… nobody wants to buy anything or services right before a sell-off. And so it was like, ‘Let’s wait and see if it gets better,'” Platt said.
He said the drop wasn’t huge, but it could be enough to convince buyers to purchase a home in the Bay Area.
“It may be that the price that the customer thought was unachievable is now achievable. But let’s be very clear: the ability of buyers to pay a purchase price is only one side of the equation. There are also the expectations of the seller,” he said.
Platt advises sellers to adjust their price expectations after interest rates fall.
Officials say the decline means homebuyers’ purchasing power has increased by about $50,000 for those with mortgages of about $2,000 a month.
“Every rate cut gives sellers room to enter a home on the market,” Keith Robinson, chief strategy officer of real estate firm NextHome, Inc., told CBS News Bay Area.
“I will take a 50 basis point cut and enjoy it and embrace it as hard as I can because we need all the help we can get for affordability. Particularly in parts of the country where housing prices are incredibly high, like where we live in the Bay Area,” he added.
Robinson says the rate cut may come as a relief to sellers, but more needs to be done.
“We can’t do it just by cutting rates. That’s not going to get us there. We need local governments to make it easier to build homes. We need to bring down the cost of insurance in California, which has gone up dramatically over the last two or three years,” Robinson said.
In the meantime, Viek is optimistic that after the interest rate cut she will be able to save some more money and give something back to the local community.
“This reduction in interest rates, it really circulates in the local economy in quite profound ways. A local contractor comes and does that patio. I go to a furniture consignment store and could use more flexibility,” Viek said.
According to the Reserve Bank, further rate cuts will take place through 2025. Experts expect the next cut will likely come after the presidential election.
