What’s Happening In Our Housing Market?

Happy April!  Finally, Spring is upon us, and with it comes the peak real estate season in Central Florida.  We see the same trends continuing:

~ Average mortgage rates remain in the 6%s.

~ Lower-priced homes are moving fast, while the higher-priced market is sluggish.

~ More transactions are all-cash.

~ Younger buyers find the current housing market challenging.  Older buyers tend to have more equity and are able to navigate and participate in the current housing market.

Q:  I’ve heard so much about the rising interest rates slowing down the economy.  How does it actually affect our real estate market?

A:  This is a great question.  Let me share an example from one of our clients to illustrate.  A rental property is valued at $425,000, rented out for $2,450 a month. It is perfect for first-time homebuyers.  Let’s see what happens if the renter wants to become a homeowner!   Let’s say the renter saved a 5% downpayment for a 30-year conventional loan, borrowing $400,000.  In 2021, the interest rate was 3%.  According to the loan calculator below, the monthly loan payment is $1,686.  There are also annual property taxes of $3,850, home insurance of $1,500, and monthly HOA dues of $112.  So the total monthly payment is $2,243.   Between the rent payment of $2,450 or a mortgage payment of $2,243, you can see why a renter may choose homeownership!

However, since mid-2022, the interest rates have averaged about 6.5%.   The same home above, with a 6.5% interest rate, now has a loan payment of $2,528 per month.  Adding the same taxes, insurance, and monthly HOA dues, the total monthly mortgage payment is now $3,085.  Compared to the rent of $2,450, it is now much cheaper to rent than to own. You can see why a renter might sit this one out!

The comparison of renting vs. owning is a time-tested old way to check market fundamentals.

The result of many would-be homebuyers not seeing the value of owning, plus being priced out of the market for homes they do want, is a significant drop in buyer demand.  This is how higher mortgage rates slow down the general market.

There is also a cascading effect when lower-tiered homes slow down. The owners of those homes who wish to move up are also caught up in the same situation.  If they don’t sell their current home, they can’t move up.  And when they do sell, their previously lower payments will be replaced with much higher ones.  This also gives some would-be home sellers pause.  The positive side is that home sellers tend to have significant equity in their current homes to help them cushion the impact of the current market.

This may explain why Alysa and my clients are of higher average age now than in many previous years.  According to a study by the National Association of Realtors, baby boomers have surpassed millennials in shares of homebuyers.

If you are thinking about buying or selling a home in 2023, talk to us now.  We are planning our schedules for the rest of the year.  Would love to have you on our schedule!  🙂

Enjoy your April.  Until next month, take care!
~Yien and Alysa Yao

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