Happy month of July! We are now officially in the second half of 2022. We hope you have fared well during the first half of this year. I will provide the latest market update, as we see it from the ground level in Orlando.
The housing market has been hot for the past several years. This year it became superheated for a couple of months. The demand for housing was so strong that the prices jumped the traditional gradual stairstep rises and set new height records across Central Florida. Then, a multitude of factors began to put the brakes on the housing market.
The Federal Reserve raised its benchmark rate significantly in June after government data showed high inflation in May. The inflation fears resulted in the 30-year mortgage interest rate nearly doubling from the low of 3% a year ago. The climbing interest rates and housing prices discouraged many homebuyers and slowed down their activities.
An important component of our housing market is the investors. Due to the escalating prices, they have also slowed their buying. When they cannot achieve the desired return on their investment, they have also backed off. One phenomenon I observed though, is that due to the housing shortage, the rent is escalating. When this happens, the investor can increase their return from the higher rent, and therefore pay a higher purchase price. This is keeping the market going a bit further, but will certainly reach a ceiling when the rent increase is no longer sustainable.
What’s keeping our market strong, still seems to be the influx of people moving to Central Florida. From our anecdotal sales and rental data, we still see people moving here and needing housing. We also see activity from sellers who have been sitting on the sideline watching the market finally listing their homes. You may have noticed a flurry of our recent new listings. The Orlando market overall saw a 36.5% increase in inventory in May 2022 compared to May 2021. New contracts decreased 19.1% during the same period.
It appears that the much talked about slow down may be upon us. I feel this is actually good news. When the market is crazy, people feel uncertain. When people feel uncertain, they typically do not make a move, which has all sorts of consequences on the market. I see more people making decisions now based on the perception of (1) higher interest rates are likely to continue to year’s end, (2) housing prices seem to have stalled (but not retreating), and (3) overall economic concerns.
I want to encourage everyone to bravely forge ahead. In my 25 years in real estate, the market has always been challenging, just in different ways. The market has always found a way to move forward. I’ve been hearing about strategies such as buying down points (borrower paying an upfront fee to reduce the interest rate on the mortgage). I have not seen that in our many years of low-interest rates environment but it was certainly common in the past.
Please scroll down and enjoy Josh Velazquez’s article below on why he is also still upbeat about homeownership in the current interest rate environment!
Whatever your housing situation is, let us help you navigate through the current environment to achieve your goals. Give us a call!