Mortgage rates & Florida home prices
Mortgage rates and their impact on the Florida real estate prices has every potential home buyer asking questions.
At Banyan Bridge Group, we’re fielding more and more questions regarding mortgage rates as the stock market corrects from its 2021 highs, the Fed firms up their rate hike schedule and the ever changing dynamics associated with the Coronavirus pandemic wreak havoc.
Should I buy now? Are rates going to go up? Where’s the best place to invest my money right now? What will mortgage rates look like 3 months from now?
I don’t have a crystal ball nor am I qualified to give financial advice, but I do have insight as an investor, realtor, home owner and student of the investment markets that might be helpful.
Should I buy a home in Florida now?
We have ZERO economic data or research findings to support that real estate prices in Florida will start to FALL from their current levels.
There IS support for the rate of HOUSING PRICE INFLATION to flatten. Understand this does NOT mean prices will fall – it just means that housing price inflation will contribute less as a factor to the price of a home – you’ll still have home price appreciation and supply and demand factors that will contribute to HIGHER home prices moving forward.
There is a HIGH PROBABILITY that home prices in Florida will continue to rise, month over month through 2022 without pause.
If a home buyer’s strategy is to wait for a specific home price to go down or for the Florida real estate market to cool off, there’s very little reason to believe this will be successful.
It is unlikely mortgage rates will go lower than the already historically low rates.
The stock and alternative equity markets are becoming increasingly more difficult to park your money and make healthy returns without taking on more risk.
Cash buyers continue to dominate the home buying process – cash buyers are pulling their cash out of the stock market and moving it into more secure assets(think homes, Real Estate Investment Trusts(REIT) and bonds that offer a higher yield and less volatility and risk to their capital.
Higher interest rates lead to buyers having a sense of urgency to BUY NOW.
It’s doubtful home prices in Florida will go lower than where they are now; at best, home prices will continue to appreciate at a normal rate AND inflate – no economist foresees a “Black Swan” event like the 2008 mortgage crisis that would cause a “buyer’s market” to suddenly appear.
A rush of foreclosures with homes suddenly available at discounted prices? There is no economic or policy data that see this as evenly remotely possible this year.
Even if circumstances change, the severity of the real estate supply shortage and the lack of new construction to fill the gap will take years, not months to normalize.
Buying a home is an investment, even if it carries more emotional ties than a stock or Gold or Bitcoin.
Even if you don’t share that opinion, banks, lenders, mortgage companies and other home buyers DO view it in as an investable asset.
That’s why homes are being purchased as quickly as they are right now.
So to answer the question – Should I buy a home in Florida now?
If you have the means to do so, the investment you make NOW will cost LESS than what it will cost you 3 months from now. If you intend to use a mortgage, the mortgage rate you lock in NOW will be better than the rate you lock in months or a year from now.
There are MANY other factors to come into play once you’ve made the decision to buy now – which home, which neighborhood, what size home, what location – but those are for another time.
Are mortgage rates going to go up?
With any type of investment, “probability” and “risk/return” are really important factors to consider.
When it comes to mortgage rates going up or down, it’s important to understand where rates have been, where they are now, and what the probability is of where they’re going.
The next factor to consider is what’s the risk you run of NOT locking in a rate now versus waiting for a lower rate.
Then, what additional RETURN will I get by waiting for lower rates?
30 year mortgage rates have been at historical lows.
Can they go lower? Of course, anything can happen. More importantly, how much lower will they go? It’s not likely they’ll go down much.
Image: 30, 15 and 5 year mortgage rates
Now look at the 30 day trend.
Now look where they’ve been over the past year.
The higher probability is they will go up.
And the supply of homes for sale will likely stay low.
Mortgage buyer Freddie Mac reported on January 12th that the average rate on the benchmark 30-year home loan jumped from 3.22% to 3.45% IN ONE WEEK.
Low supply means higher prices.
Higher rates = higher cost to finance the same home.
The higher likelihood is by NOT locking in a rate now, it’s more likely that 3-6 months from now, you’ll be locking in a HIGHER rate for the same home but at a higher list price.
We foresee that mortgage rates will be higher 3 months from now than they are now.
If we saw reasons to believe that mortgage rates would be going lower, we’d share the data – we just don’t foresee it nor have seen any indications from economists, mortgage companies or government data that tracks the data.
As I view the market, I see no indicators that mortgage rates will fall any lower than they are now for at least the next year.
On top of that, I DO see indications mortgage rates for 30 year loans have “bottomed” and will tend to rise gradually. This will make the cost of financing a home HIGHER week to week, month to month.
And with home prices in Florida likely to go higher or at best, gradually flatten out, that makes it highly probable that the cost of financing a home in Florida NOW will be lower than in the near future.
How mortgage rate increases impact your home purchasing power
Here’s a real example of how incremental .25% increases in your mortgage rate impacts your home purchasing power.
Let’s say you are looking to purchase a $500,000 home with 20% down, or $100,000.
That leaves you with a $400,000 mortgage.
Let’s say your credit score is between 700 and 719.
That might qualify you for a 3.87% mortgage rate TODAY.
Excluding property tax, home insurance, mortgage insurance or HOA dues, you would have a PRINCIPAL+INTEREST amount of $1,879 per month with a 3.87% mortgage rate.
A week from now(yes, that’s how quickly things can change!), let’s say the mortgage rate increases .25% to 4.12%
Your $1,879 PRINCIPAL+INTEREST payment has increased to $1,937.
- That’s $65 per month, for 360 months.
- That’s an additional $23,400 over the course of the loan.
- That seemingly small .25% increase adds an additional 3% to your PRINCIPAL+INTEREST payment PER MONTH.
From 4.12% to 4.27%, your PRINCIPAL+INTEREST payment is now $1,995, a 6% increase per month over today’s rate of 3.87%
- That’s an additional $116 per month for 360 months
- That’s an additional $41,760 over the course of your loan.
See how quickly this adds up?
Within 3 months, we can be looking at a full 1% increase in mortgage rates.
What would that look like in this example?
Your PRINCIPAL+INTEREST on a $400,000 loan would then be $2,115.
- That’s a full $236 per month MORE than what you’d pay per month, compared to a loan locked in TODAY.
- That’s a 12.5% decrease in YOUR purchasing power with just a 1% increase in your mortgage rate.
- Over the time of the loan, that adds an additional $85,000 to the payments you’ll make on your mortgage.
Read that again – $85,000 increase on your loan payments with just a 1% increase in your mortgage rate, a HIGHLY LIKELY scenario over the next 3-6 months.
When you consider the impact of mortgage rates, you begin to understand why there is such a sense of urgency and what SEEMS like crazy bidding wars on homes in Florida.
Florida real estate prices & mortgage rates
Trying to “time” the bottom or top of any investment market is impossible. That’s especially true when it comes to the Florida real estate market.
In a market as volatile as the Florida real estate market is, probability and risk/reward are important factors to consider.
When we look at the home prices and mortgage rates, we see the highest of probabilities that home prices will continue to rise and mortgage rates will rise as well.
Another likely outcome over the next 6 months are home prices in Florida will “flatten” but they will not go down.
Similarly, mortgage rates may not increase significantly BUT they are unlikely to reach historically low levels as they have sat in the year past.
That’s why we’re recommending that if you like a particular home, have the means to purchase it and are disciplined enough not to get into a ridiculous bidding war for a home, then you should make a move to purchase NOW versus waiting for rates or home prices to fall.
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