High interest rates push buyers to seek cheaper homes

Soaring house prices have made the housing market difficult for buyers, but rising interest rates are now forcing buyers to recalibrate homes they can afford.

In South Florida, the average monthly mortgage payment for a new mortgage rose 61% from a year earlier as house prices rose and interest rates soared, according to analysis by Zillow.

The increase in South Florida is greater than the increase in mortgage payments nationally. The average monthly payment for a house nationally is up 50% from a year ago.

“We expect that over the next few months, rising prices and rising mortgage costs will dampen demand as affordability issues keep many potential buyers out of the market, and inventory will continue to rise,” he said. said Zillow economist Nicole Bachaud.

Currently, rates on a 30-year fixed mortgage are around 5.4%, significantly higher than the 2.75% to around 3.25% rates that fueled the housing boom at the start of the pandemic. .

According to Zillow’s analysis, rising mortgage rates add more to the budget of potential buyers and thus lower the price of homes they can afford.

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Currently, the average new monthly mortgage payment for a typical South Florida home, assuming a 20% decline, is about $1,843, or $702 more than a year ago. This is due to both rising home values ​​and rising interest rates.

Last year, the average monthly payment was around $1,141. At the start of the pandemic, it was even lower: $1,078.

“Three huge factors on the monthly payment worked against affordability: higher prices (higher loans), higher rates, and homeowners insurance costs also went up,” said Craig Garcia, president of Capital. Partners Mortgage in Coral Springs.

“Essentially you’re adding a car payment to the house payment you might have received 6 months ago,” he added.

Potential buyers aiming for a certain monthly payment should look for homes at lower prices, or look for smaller homes or even homes in different cities or neighborhoods, Bachuad said.

Last year, a buyer who could pay a monthly mortgage of $1,500 could have bought a house for around $340,000, assuming a 20% down payment. Now, that same buyer would need to find a home for around $275,000 to establish the same monthly payment.

As interest rates rise, demand for mortgages has plummeted across the country. The latest figures from the Mortgage Bankers Association, which tracks mortgage applications nationally, show purchase applications fell 14% last week compared to the same week a year ago.

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