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What to Know About Scouting High-End Properties When Interest Rates Drop

The Federal funds rate was reduced to almost zero, usually a tactic used during a recession. Here's what it means for real estate.


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In mid-March, the Fed cut the benchmark interest rate to near 0 %, a card historically held in their back pocket to be played in the event of a recession. The Federal funds rate was last slashed to this extent in December 2008, and stayed that low until 2015. The Federal funds rate impacts rates associated with mortgages, auto loans, variable-rate loans, and most financial products the average consumer interacts with. The goal is to make borrowing cheaper, and this recent decision to reduce the Fed rate was made in conjunction with the Bank of England and Bank of Japan.

What does that mean for mortgage interest rates? Daniel Karp, a New York City-based licensed associate real estate broker at Compass, says, “to buy today, you would be looking at around 3.375 % on a 30-year fixed-rate loan.”

To put that rate into perspective, mortgage interest rates this time last year were at 4.28 %. While lower interest rates on 30-year mortgages have become more standard following the 2008 recession, they’re still apt to change overnight, especially with the market fluctuations we’re seeing right now. An interest rate dip, even during a consistent period of recession, can be short lived. When the Fed slashed their rate in December 2008, 30-year mortgage loan rates were still back up to 5.65 % by the following June.

The Current Real Estate Climate

As the COVID-19 pandemic progresses, it of course becomes increasingly difficult to gauge how exactly reduced interest rates, a historically low Dow, and a looming recession are affecting the luxury real estate market right now. However, currently, because of the shelter-in-place orders across the country, “the real estate market is in somewhat of a holding pattern,” says Karp.

Karp’s prediction is, “if the pandemic slows down in the next month or so, we expect to see a sharp increase in sales throughout the summer and quicker normalization. If the pandemic carries into the summer and unemployment numbers continue to rise, we expect prices to go down and a longer road to recovery.”

Sherri Hoke, vice president of sales at Jameson Sotheby’s International Realty and a Chicago-based luxury agent, says, “my guess is, right now, the impact on price is between 3 % and 5 % down, but as time goes on, that (percentage) will likely grow.”

Hoke points out that the volume of listings is vastly reduced right now, simply by virtue of no one touring property. Hoke ultimately agrees with Karp’s assessment, saying, “if we can get back out there soon, likely the price will go right back up and over, due to pent-up demand. If this goes on for months and into next year, likely we’re looking at a different picture.”

What You Need to Know About Shopping for Property Right Now

Brendon O’Rourke, a NYC-based licensed salesperson at Sotheby’s International Realty, says that there is a major opportunity on the horizon. In fact, O’Rourke encourages those interested in buying luxury real estate to start their search now.

“Now is a great time to invest in New York City real estate,” says O’Rourke. “There are deals to be made.”

Of course, from an interest rate perspective, market activity increases as rates lower. But as Hoke points out, in the luxury market, it could attract buyers to even higher price tags. “(Lower rates) increase affordability, so some buyers may choose to buy at a higher price while keeping their monthly cost the same,” she says.

O’Rourke says getting a jump start (virtually) while everyone is sheltering in place is pragmatic. He advises interested luxury buyers to start reaching out to their agents, who are “still working from home and can arrange virtual tours of properties.”

“Educate yourself and do your research so that, when things return to normal, you are ready to go and can take advantage of opportunities ahead of the crowd,” he advises.

For luxury buyers looking for an agent right now, both O'Rourke and Hoke recommend finding someone with experience in your desired neighborhood. O’Rourke’s says these agents will provide you with the most access, stating, “some sellers are choosing to hold their listing off-market. Experienced brokers are aware of these off-market opportunities and can offer you access before the general public and advise you on the next steps.”

Hoke adds another layer, too: “A bonus would be to work with someone who weathered the storm of 2008 to 2012,” she says. “While this (situation) is very different, the experience helps to navigate tumultuous markets.”

Are We Heading Into a Buyers’ Market?

Hoke, as a Chicago-based luxury agent, says, “2020 was starting off to feel like a sellers' market, but I think this virus has flipped that to a buyers' market”

She thinks that, as a result of job loss and salary reductions, “buyers really do have the upper hand at this time.”

That being said, she expects a power shift when the shelter-in-place orders lift. “Buyers will flood the market, there will be people who are feeling that their homes are too small and buyers who planned to buy this spring and put their plan on hold due to the virus.”

Specifically in NYC, O’Rourke says we’ve been in a buyers’ market all year. However, as things move forward, his read on the situation mirrors Hoke’s. He cautions that because most sales have been on hold since March, there may be a frenzy to sign paperwork as soon as in-person dealings can resume.

He further reiterates that a factor propelling “the luxury market is buyers' realization of a greater need for space after being kept inside for several weeks.” And it's true—there's nothing quite like spending weeks inside your home to make you realize it's time for a change—or more space.


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