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Higher Fed Interest Rates Increase the Cost of Homes

Karen Mari


Higher Fed Interest Rates Increase the Cost of Homes

Residential property prices have grown along with the Federal Reserve's additional quarter point hoke in interest rates to 5.5%, which went from into effect on July 27th.  Credit lending is also becoming more restrictive.  Since February, interest rates have risen by a full percentage point because of teh Fed's four increases in interest rates this year.  The Miami-Fort Lauderdale-West Palm Beach metro area had infletion in April that was 9% more than the national average of 4%.  In addition, the average home roie in Florida increaseed by 5% in MAy, per a SmartAsset housing market report for 2023.

Miami's median price for a single-family house in May was $553,743, an increase of 8.55% over the previous month.  The average home price in Miami Beach was $518,249, up 5.55% from the previous year, and in Miami Gardens it was $417,085, up 9.46%.  According to Home Development Collective, an equity investment platform for new homes development, based in Orlando, homes in Flroida are selling for 14% to 27% more than they where two years ago

Inventory is also impacted by current housing prices and the cost of mortgage financing.  Data from the Home Construction Collective show that in 1970, started homes made up more than 35% of all the completed housing.  They now account for less than 10%.  Inventory is also constrained by buyers who entered the market when borrowing rates where at is lowest, and feel tied to their properties.  Additionally, according to data from Home Construction Collective, banks are seeing many commercial properties coming back to their balane sheets due to low utilization rates of office buildings and high interest payment, which leads to credit tightening and less available money for residential real estate.

Many wouod-be homebuyers believe they must continue to rent.  Miami-Dade County has become the most competitive rental center this summer, accorging to analysis report.  Data aquired by Yardi Systems shows that one vacant rental property in the county typically attracts 24 potential tenants.  With an occuppancy rate of 97.1%, the typical number of days a unit is empty is 33 days, which is 10 days less than the national average.  In addition, despite a 0.9% increase in new untis, 71.8% of apartment leases are being extended, the the county is falling short of meeting rental demands, according to the report.  In terms of rental competition, Miami is followed by North Jersey, Southwest Florida and Broward County.

The Miami Association of Realtors, reportd that single-family pending sales in Miami-Dade jumped from 1,057 to 1,064 transactions for the first time since November 2021.  South Florida's showing appointments likewise went up 7% year afer year from 218,973 to 233,675.  The new standard of 6% to 7% borrowing rates is being accepted by buyers, but Miami-Dade'ss historically low supply is limiting sales in this high-demand market, according to the association's chairperson, Ines Hegedus Garcia.  We are closely monitoring new listings to take advantage of Miami's burgeoning market, where a rise in supply would logiacally lead to an increase in sales.  In fact, the number if home sales in Miami, decreased 18.2% year over year in June, from 2,891 to 2,364 transactions, according to the survey, due to elevated mortgage rates and lack of supply in certain price points.  When mortgage rates peaked in May at 7.14% as opposed to 5.27% in 2022, the majority of those sales took place.

Miami's existing condo sales also fell, from 1,751 in June 2022 to 1,360 this June 2023, a 22.4% year over year decline.  According to Miami Realtor's, the average 30-year fixed rate mortgage was 6.96% as of July 2023.  The where at 6.81% just a week earlier and 5.51% a year ago.  In the past Miami-Dade's new listings inventory has averaged 20,302 per month.  At 9,027, the current inventory is down 57.9%.