How do rising interest rates affect mortgages and the Orlando housing market?

May 23, 2022 | ARMEL NEWS

By   –  OBJ Staff Writer & Orlando Inno Reporter, Orlando Business Journal

A few months ago — thanks to the frenzied housing market activity resulting in homes quickly disappearing off the market — Orlando house hunters were willing to give their first-born child with their offer, Realtor Deanna Armel said.

Today, that has slowed a bit, the owner and broker of Kissimmee-based Armel Real Estate Inc. told Orlando Business Journal. “It’s been a slow transition from the craziness. Instead of 25 offers, I’m getting five.”

Central Florida’s red-hot housing market is far from going cold. Still, the rising interest rates that are grabbing headlines nationwide are “playing a huge role” in the region’s tapering market, Armel added.

Here’s more on what recent interest rate hikes mean for the region’s single-family home market:

What’s happening with interest rates? In an effort to combat inflation, the U.S. Federal Reserve in May raised interest rates for the second time this year. More rate hikes are on the table in June and July, said Federal Reserve Chair Jerome Powell.

Does the Federal Reserve set mortgage rates? No. However, the Federal Reserve’s monetary policy is one of many factors that can influence mortgage rates. Mortgage rates have been on the rise across the board this year. The average U.S. 30-year fixed mortgage rate was 5.3%, according to Freddie Mac. That was up from 2.94% a year prior.

How will higher mortgage rates influence homebuyer demand? When mortgage rates go up, new buyers who finance their home purchases will pay more money each month. That means rising mortgage rates may discourage some would-be buyers. Buyers are very active in metro Orlando’s housing market, but local home sales in April were down 7.3% compared to March and down 6.8% compared to April 2021, according to the Orlando Regional Realtor Association.

Do rising mortgage rates affect the Central Florida housing market in other ways? It alters a homebuyer’s strategy. Even if higher rates don’t scare house hunters away from the market, it affects what they can buy, Armel said. When mortgage rates were lower, buyers could afford to pursue bigger homes or bring cash to the table to supplement their loan and beat out other offers.

In the mortgage industry, surging rates also curb consumers’ appetite to refinance. In fourth-quarter 2021, the volume of refinance loans nationwide dropped 18% year-over-year to $578 billion, Attom Data Solutions reported.

What’s next for mortgage rates? They’re on pace to continue to escalate. The average 30-year fixed rate is projected to rise to 6.7% next year and 8.2% by 2025, according to an April report by the Federal Reserve Bank of New York.

That historical perspective is one reason Bank of America Corp. (NYSE: BAC) Orlando Lending Market Leader John Javier doesn’t expect creeping mortgage rates to result in home demand bottoming out, he told OBJ. “I’ve been doing mortgages for 22 years. When I started my career, we were talking about 10% rates. People were still buying homes.”


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