Potential CO homebuyers rejoice at interest rate cut as experts warn of pitfalls

The Federal Reserve on Wednesday cut its benchmark interest rate by a half-point — the first cut since March 2020.

The move, which comes after more than two years of high interest rates aimed at taming inflation, is providing hope to potential home buyers in Colorado.

"I'm so excited," said Alena Olorunfunmi, whose family has outgrown a home they purchased in Aurora in 2023. "It's getting bright at the end of the tunnel."

The benchmark interest rate went from a 23-year high of 5.25%-5.5% to 4.75%-5%, a reduction of half a percentage point.

Jerome Powell, chairman of the Federal Reserve, hinted that a rate cut was on the horizon after the top measure for inflation showed it fell to 2.5%, near the 2% target, in August. That's down from its peak of 9% in the middle of 2022.

"Now we feel like we have more options," said Olorunfunmi.

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Olorunfunmi and her husband have been scouting larger homes since the recent birth of their daughter.

"It just happened, like, overnight, where we're feeling cramped," she said. "We want our child to be able to run without running into corners."

Kishore Kulkarni, an economics professor at Metropolitan State University Denver, said home buyers should temper their expectations.

"We need to be thinking about not getting too excited about this .5 decline in interest rate," Kulkarni warned.

The expert said making decisions too quickly could have far-reaching impacts.

"The only question which is negative about all this is how fast we will start borrowing and how fast we will start spending?" said Kulkarni. "If we do that very quickly, then the prices will probably go up, and then there will be some effect on inflation, as well."

According to the Colorado Association of Realtors, the median price for a single-family home in Denver was $699,000 in August. In Adams County, it was $523,945.

Read estate agent Crystalle Guss said the rate cut could put homeownership in closer reach for some Coloradans.

"This interest rate drop could be the difference between somebody qualifying for $440,000 to $500,000," she said. "It really makes a difference with your buying power."

While Guss said she can see why buyers would be excited about interest rate cuts, she advises them to take time to do their research.

"It's really risky to make decisions on what we think will happen," she said. "But it's absolutely time to have those conversations and start analyzing if it's the right time for you."

There could be more interest rate cuts in the future. According to the Associated Press, the Fed signaled that it will cut the rate by another half a percentage point this year and expects four more cuts in 2025 and two in 2026.

That news makes prospective buyer Olorunfunmi excited for what's to come.

"Now the tides are turning, slowly but surely," she said.

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