Mortgage rate drop could give Bay Area buyers $136K more in buying power than they had in August

Bay Area house hunters can now afford much more house than they could just a month ago — and with the Federal Reserve’s aggressive rate cut announced Wednesday, their buying power could grow even more.

The buyer of a median-priced Bay Area home in August at an interest rate of 6.47% could today, with rates at 6.09% and the same budget for their monthly mortgage, buy a home priced $51,187 higher. If mortgage rates fall further, to 5.50%, that same buyer would have $136,239 more buying power than they did in August — that’s all assuming a 30-year fixed-rate mortgage with a 20% down payment.

Whether that additional buying power actually allows house hunters to spend on more expensive homes depends on several factors. It’s possible that further rate cuts would motivate more buyers to jump into the market, increasing demand and pushing prices up. Rather than allowing them to buy larger or more desirable homes, buyers may have to use that newfound buying power to simply increase their offer price.

It’s also not certain that the Fed’s rate cuts will actually translate into lower mortgage rates. Normally, the Fed’s rate cuts allow banks to borrow at lower costs, which in turn allows them to offer lower mortgage rates to their customers.

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