Interest Rate Increases And Their Effect on the South Florida Real Estate Market

Posted by Brian Pearl on Sunday, August 21st, 2022 at 5:26pm

Home Sold With Multiple Offers Sign

The Federal Reserve intensified its fight against inflation in June by announcing the biggest interest rate increase in 28 years as the government's main lending institution tries to rein in skyrocketing consumer costs. 

The largest increase since 1994, the Fed increased its benchmark interest rate by three-quarters of a percentage point. That comes after increases of a quarter point in March and a half point in May. The increase is due to growing prices for rent, groceries, gasoline, and a variety of other goods and services. Higher interest rates will increase the cost of carrying a credit card bill, obtaining a vehicle loan, and purchasing a home.

Rate increases are anticipated to continue in the upcoming months. In general, Fed policymakers said they anticipate interest rates to increase from the 1.9% they were forecasting in March to roughly 3.4% by the end of thę year.

Rate Increases Affect Mortgage Rates, Driving Out Some South Florida Home Buyers

In anticipation of the Fed’s policy moves, mortgage rates have drastically increased, making properties unaffordable for some prospective buyers. Average long-term mortgage rates experienced their highest one-week increase in 35 years following the news. A 30-year fixed mortgage's average rate is currently close to 6%, which is a double increase from a year ago. 

However, the home market is being cooled by the unexpected increase in interest rates. In comparison to 2021, mortgage applications are down more than 15%, and they fell by 5% in May alone. According to Redfin, this is causing roughly one in five house listings nationwide to lower their asking price.

But that's not all. Original asking prices also decreased, down 3% from their May peak. As a result, from June's record-breaking zenith, the median sales price of a home in the U.S. decreased 0.7% over the four weeks ending July 10. 

Budgets for prospective homeowners are being strained by inflation and high mortgage rates. Properties are starting to accumulate on the market as few purchasers can afford homes that in certain locations cost 50% more than they did just two years ago. Prices are consequently beginning to decline from their record highs.

Despite the fact that home values are still rising by double digits nationwide, the 11% gain from the previous year is the weakest in over two years, according to Redfin.

Real Estate Expert Weighs In: Brian Pearl, The Pearl Antonacci Group

Interest rates have, and will continue to have an affect on home prices. When some buyers are priced out of the market, the laws of supply and demand take over. While last year produced more buyers than available homes, interest rates crossing over the 5% threshold has flipped this dynamic. For sellers, this means the heady days of multiple offers and bidding wars are coming to an end.

Sellers will soon be competing with each other to offer the most attractive homes for the right value. While it’s now a foregone conclusion that your home may not command the same price it would have last year, those who move quickly and list competitively can still take advantage of the equity earned since 2020. Many experts are expecting home values to revert to pre-2020 levels. Based on my experience with shifting markets, I’m expecting a slight correction, but the sky isn't falling by any means.

An Increase In Housing Supply Is Already Here

As a result of supply problems that have plagued the real estate market throughout the epidemic, it has been difficult to impossible for purchasers to find the property of their desires. This is already changing however. For the first time in nearly three years, there are more homes available nationwide. Redfin's data reveals that the number of properties for sale nationwide climbed by 2% in June, the first growth since July 2019.

The increase in supply is the result of this powerful confluence of rising mortgage rates, record-high housing prices, and the general state of the economy, all of which are factors driving more buyers away and restoring equilibrium to the market.

Expert Advice: Vini Antonacci, The Pearl Antonacci Group

It’s never a bad time to buy a new home. Particularly in today’s environment, buyers have the opportunity to spend less than would have been necessary in 2021. With approximately 30% more inventory available than at this same time last year, there’s no need to settle; options are more plentiful than a year ago. 

Even for those who bought at what appears to have been the top of the market in 2021, buyer’s remorse should never be a concern. Homes are long-term investments, and those buyers still took advantage of historically-low interest rates the likes of which we may never see again. Those who had the means and found what they wanted should consider themselves quite fortunate.

Florida Bucks National Real Estate Trends

Naturally, Florida typically defies the norm. In certain locations, our home state is still experiencing a boom. Redfin discovered that North Port, Florida, experienced the largest recent home price growth, with home prices increasing by 29.7% from the previous year to $480,000. Cape Coral, with 27.7% was a close second, followed by homes increasing in Tampa by 26.1%.  South Florida has also seen record home price increases.  Palm Beach County's single family home median sale price increased over 27% in the second quarter of 2022 from the same time last year.  

Brian’s Take: Brian Pearl, The Pearl Antonacci Group

One thing that’s on everyone’s mind in the Sunshine State is the luxury real estate market; it’s unlike anywhere else in the country. Still, these rate changes will have effects on even those deep-pocketed buyers who are paying cash. Higher borrowing rates can have a negative influence on stock and crypto markets, which can lessen their buying power. 

Buying? Selling? Unsure? 

No matter what your real estate goals may be, the experts at The Pearl Antonacci Group help guide their clients through any and all challenges. If you are considering whether or not buying or selling a home is the best choice for you and your family, contact us today for a consultation.

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