Carol Zingone, 2022 Florida Realtors director, offers insight into the market.
By Carol Zingone | Broker Associate, Berkshire Hathaway Homeservices Florida Network Realty
We’ve all seen, read and heard about how competitive the real estate market is, and not just here in Florida, or our corner of it, Northeast Florida.
Contributing to this are several factors: below normal inventory levels, which existed before COVID; an above average surge in both buyer and renter demand due to many reasons, including the new acceptance of remote working; how open Florida was during the pandemic; our low state taxes; the weather; and historically low interest rates.
The question remains, how do rising interest rates affect homebuyers?
A rise triggers some anxiety, making buyers think they have “missed” the perfect time to buy a home. They have not, is the short answer.
The real question is how much house the buyer can afford to purchase today.
For every 1% increase in the interest rate, the principal and interest payment increases $59.40 per $100,000.
An example in hard numbers: Purchase price of $450,000 with a loan amount of $400,000.
With a 4% interest rate, the monthly principal and interest is $1,909.66 per month (not including taxes and insurance).
At a 5% interest rate, however, the monthly principal and interest is $2,147.29, reflecting an increase of $273.63 per month. Again, excluding taxes and insurance.
Here we are with still low inventory levels, surging buyer demand, and now increasing interest rates.
Will this affect the typically strong spring market? It may have some effect on the number of over-list price offers we have been experiencing, due to the decreased affordability.
This in turn may well affect a seller’s pricing, and we may start to see some softening of listing prices. This will not, however, likely predict that list or sale prices will fall by a significant amount.
An option for buyers in today’s market is to consider an adjustable rate mortgage to help the affordability picture.
Using hard number examples as above, with an ARM product, the rate difference could be as dramatic. Compare a 30-year fixed currently at 5.75% and the ARM product at a 5% interest rate - 0.75% below the 30-year fixed.
This results in a monthly payment of principal and interest from $2,334.29 to $2,147.29 (based on 20% down, $500,000 purchase price).
This results in a savings of $187 per month.
This is by no means the worst time to buy a home, whether it is your first home or not.
It’s just best to be prepared for a rising interest rate environment, and waiting too long may put you out of the market altogether.
Carol Zingone is the 2022 Florida Realtors director, 2022 past president real MLS, 2017 past president WCR Jacksonville and a NEFAR past president.
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