The Negative Impact of Low Interest Rates - sample newsletter for Erika Buse

The historically low interest rates that are available right now present a variety of positive attributes for both home owners and potential buyers, such as increased affordability and purchase power. Just consider that, for each time the interest rate on a 30-year fixed rate loan is decreased by a 10th of a point, it adds up to an approximately $5,000 increase in purchasing power.

In many cases, this effectively cancels some of the appreciation in prices. With price appreciation and low rates, however, many home owners aren’t seeing much reason to move and they are opting to refinance instead. This exerts a negative impact on the housing market, but more on that later.

It may be obvious to point out that having the average interest rate on a 30-year conventional fixed rate mortgage fall below three percent can deliver substantial cost savings to buyers and give them a reason to celebrate. Even with the Coronavirus in full-on beast mode, the notion that low interest rates are more important than prices is giving buyers a reason to go shopping.

The hidden, less obvious consequence of low interest rates is that it has a drastic, negative impact on inventory levels, since many home owners are deciding to refinance, realize a significant monthly savings, and stay put. The sale of existing properties typically accounts for around 80 percent of the available homes for sale and many are understandably concerned about having troops of potential buyers traipsing through their home. This only exacerbates the inventory problem.

In Whatcom County, for example, inventory levels are down by a factor of 10 percent, for the period between June 2019 and June 2020. Active listings year-over-year are down by almost 20 percent. Simply put, there’s just not much out there to buy right now.

What does all this mean? If you’ve thought about selling, it could be a great time, as there isn’t much competition. Selling right now isn’t as risky as some people think: to protect my clients I am using my technical skills whenever possible to limit exposure. This includes using virtual tours, electronic resources when possible, and FaceTime for video conferencing and remote buyer walk-throughs.

For buyers, there isn’t much reason to hurry. Most experts agree that the Fed is likely to keep interest rates low, at least through the end of the year. With the economy in the shape that it is, it’s hard to imagine they would find a reason to raise the interest rates.

Deciphering the implications of the national economy on the local real estate market can feel like a full-time job. Even though one of my previous titles was director of investor relations, and I once held a Series 65 investment license, some of the jargon can feel like contrived obscurity to me sometimes and it can be difficult to navigate.

If you’re looking for someone who will go the extra mile to provide you with an insight on your most important financial decisions pertaining to real estate, I hope you will consider me. Now more than ever, it’s great to catch up and connect, so please share your thoughts. We’ll fill up some hours with my favorite subject: real estate!