Will Fed Rate Cut Help The Minneapolis Duplex Market?

The Federal Reserve Bank exceeded market expectations this week by cutting interest rates by .5% rather than the anticipated .25%. It was the first rate cut in 4 years.

This reduction should indirectly cause mortgage interest rates to drop further into the 5’s, as banks had already priced the expected smaller cut into pricing.

Lower interest rates help Minneapolis and St Paul duplex buyers and sellers alike. For buyers, they should be some help to increasing cash flow and buying power. Of course, the latter helps duplex sellers as well.

However, it’s important to keep things in perspective. A half-point change in mortgage interest rates on a $400,000 mortgage lowers monthly payments by $128.58 per month or $1542.96 per year. That’s not nothing, but it’s also not tens of thousands of dollars per year.

According to a story published by media wire Reuters, Fed policymakers projected rates would drop another half point still this year, and a full point next year.

Dreaming of taking advantage of historically low mortgage interest rates caused by catastrophes like a global banking crisis or pandemic, this forecast may cause buyers to continue to wait on the sidelines for a unicorn.

Of course, this is not likely to happen. Even if it does, low rates not only increase affordability, but entice more buyers into the marketplace. This combination can serve to cause prices to rise.

So perhaps the good news in all of this is the reason the Fed cut rates in the first place; inflation is finally easing to the point they’re comfortable giving us a break on interest rates.

And that’s pretty good news all on its own.