Letter to the editor: Falling interest rates mean you can afford a larger home

How's the market?

It's great! This common snippet of conversation has echoed through the decades, as long as there have been people buying houses and realtors to sell them. But what does it really mean? Such an open-ended question can make the brief answer seem suspicious.

As of Sept. 11, 2024, interest rates are trending downward. Why? Several factors contribute to this trend, but two major influences stand out: the Federal Reserve and its impact on borrowing costs.

The Federal Reserve aims to achieve a few key economic goals to help lower interest rates. Why is this important? When people struggle to afford their lives, they cut back on spending, which in turn reduces tax revenue. This decrease in revenue can affect government programs and services. However, a more optimistic perspective is that the government is concerned about our well-being. By making housing more affordable, we boost people's spending power, which increases tax revenue and supports more programs that improve our quality of life. Ultimately, when people can buy homes, it benefits the economy.

Now, back to what the Federal Reserve is targeting: They want to see inflation trend downward or stabilize. Check-recent reports have shown this, leading to a quarter-point decrease in rates. They also want to see unemployment decrease. Check, check-recent data indicates a drop in unemployment, which could lead to another quarter-point reduction.

We're now seeing rates in the high 5s to low 6s, depending on credit. What does this mean for you? Without needing a raise or a large gift, your monthly mortgage payment is now lower, which means you can afford a more expensive home.

Let's look at the numbers: Suppose you're approved for a mortgage payment of $1,200. At a 7% interest rate, you could afford a house worth approximately $180,000 (excluding taxes and insurance). At a 5% interest rate, however, you could afford a house worth around $230,000.

To put this into context, I researched recent sales in Sumter. Homes priced at $180,000 were typically under 2,000 square feet, older, possibly modular, and may not have included modern updates or a garage. In contrast, homes in the $220,000 range were mostly all-brick, newer (from the 1980s to the 2010s), and typically offered features like a garage.

In summary, with interest rates falling due to stable inflation and reduced unemployment, you can now afford a larger or better-quality home for the same payment.

SARAH JANE GIBSON

Keller Williams Palmetto