MIAMI-DADE COUNTY, Fla. \u2014 For the first time in three years, the Federal Reserve, in an effort to curb persistent inflation, raised interest rates by a quarter percent.<\/p>\n
It\u2019s a move that could impact South Florida\u2019s local housing market. <\/p>\n
\u201cI think it comes at a tough time in South Florida,\u201d said Adrie Bailey, Associate Vice President of Originations at BridgeInvest.<\/p>\n
Craig Kirsner, president of Kirsner Wealth Management, said, \u201cThe condo market in South Florida has definitely stalled recently, for a couple of reasons. New financial requirements requiring assessments for repairs and maintenance are raising costs, and insurance costs are very high. So the fact is that the condo market has definitely stalled.\u201d<\/p>\n
Indraneel Chakraborty, a University of Miami professor of finance, said, \u201cHouse prices have gone up significantly and now you have finance that house at a very high interest rate, because the ability of consumers to demand those houses decline as interest rates rise.\u201d<\/p>\n
The market is already showing signs of cooling.<\/p>\n
\u201cMiami is one of those locations where house prices have really risen,\u201d Chakraborty said. \u201cSo housing is becoming even less affordable with high rates.\u201d<\/p>\n
Kirsner said, \u201cSo rising housing costs, soaring insurance premiums, high HOA fees make living in Miami much more expensive. It\u2019s one of the most expensive places to live already. So, having higher mortgage rates only adds fuel to the fire and makes things more even more expensive to live in Miami.\u201d<\/p>\n
It also makes it harder for builders to bring new housing projects online.<\/p>\n
\u201cSome projects simply won\u2019t get done,\u201d Bailey said.<\/p>\n
It\u2019s something that could put increased pressure on supply.<\/p>\n
\u201cWhich over time increases the cost of housing,\u201d Bailey said.<\/p>\n
Rising housing costs could then exacerbate existing affordability issues, according to the experts. <\/p>\n
\u201cOnce you have housing taken care of, the remaining income statement is also compressed, because you have to spend everywhere else,\u201d Chakraborty said.<\/p>\n
In an era when nearly everything else, from gas to groceries, is getting more expensive, Chakraborty said the pain goes beyond housing.<\/p>\n
\u201cSo the pain will be felt not just in housing affordability but affordability in life in general,\u201d Chakraborty said.<\/p>\n
\u201cWhile the Fed\u2019s decision could continue to influence mortgage rates, the reality is, it\u2019s expensive to borrow money right now,\u201d added Kirsner. \u201cThe average mortgage rate is over 7% and this news of higher rates likely won\u2019t much do much better to lower those. And the fact is, this might not be the last increase either. The Fed is really facing the question of whether it will need multiple increases to help curb high inflation.\u201d<\/p>\n
Said Bailey: \u201cThe Fed has to think about the entire country and unfortunately the Fed has essentially one major tool and I like to say that tool is a bit of sledgehammer \u2014 it is not a scalpel.\u201d<\/p>\n
That takes us back to the Fed and why it raised the rate in the first place.<\/p>\n
\u201cThe conflict in Iran continues to keep oil prices high, and that\u2019s caused inflation globally to be high, and that\u2019s why many countries have already started raising interest rates. So having the U.S. raise rates would be a normal course of business in line with what\u2019s happening around the world,\u201d said Kirsner.<\/p>\n
\u201cUnfortunately inflation has been rising so the Fed is increasing rates in order to lower the rate of inflation,\u201d said Bailey. <\/p>\n
Added Chakraborty: \u201cAnd that would be good, but it comes at the cost of short term pain. The only way out of the significant inflation that we saw for everything is real wage growth. Real wage growth means growth beyond inflation. If accounting for just inflation you have essentially no wage growth so real wage growth is wage growth beyond inflation and that has been tepid.\u201d<\/p>\n
ADDITIONAL INFORMATION FROM KIRSNER<\/p>\n
Q: WHY DID THE FED CHOOSE TO INCREASE INTEREST RATES NOW? <\/p>\n
Inflation remains stubbornly above the Fed\u2019s target rate and has steadily increased this year due to the conflict in Iran. The Federal Reserve\u2019s ideal target inflation rate is 2%, and the current number is 3.4%. Surging investment in AI data centers has also accelerated inflation and contributed to higher long-term interest rates.It\u2019s the first interest rate cut in over three years, and more may be coming. It is rare for the Fed to lift its key rate just once, which is likely to have little impact on the economy, and so multiple hikes are likely.<\/p>\n
Q: HOW DO HIGH INTEREST RATES IMPACT THE MIAMI REAL ESTATE MARKET?<\/p>\n
While this decision could influence mortgage rates, the Federal Reserve doesn\u2019t control them. It sets target interest rates for banks borrowing money from each other, which can influence the interest rates you and I pay. However, it\u2019s expensive to borrow money right now. The average mortgage rate is7.07%, and this news likely won\u2019t do much to lower those. This may not be the last increase either – the Fed is facing a question of whether it will need multiple increases to curb inflation. Rising housing costs, soaring insurance premiums, HOA fees and more are making housing expensive in Miami. Currently, the cost of housing is 57% higher than the national average. <\/p>\n
Q: HOW ABOUT THE CONDO MARKET IN MIAMI? <\/p>\n
The condo market has been stalled recently. New financial requirements requiring assessments for repairs and maintenance for South Florida condo buildings are raising the cost of living in condos, and that\u2019s causing some owners to get rid of their units.However, it has shown signs of rebounding. Sales for condos between $400,000 and$500,000 rose by 12% year over year in July.But if rising interest rates continue to push borrowing rates up, current condo new buyers may be less incentivized to enter the market. Condo prices are pulling back with less demand in the market. It could be an opportunity to get a condo at a discount. I encourage those who are in the market for a condo, or looking to sell, to speak with a financial professional about their options and what they can afford. <\/p>\n
Q:WHAT SHOULD PEOPLE DO TO MAKE SURE THEY ARE FINANCIALLY PREPARED TO OWN A HOMEOR CONDO? <\/p>\n
Revisit Your Budget<\/p>\n
Your budget will likely need an overhaul when you own a home, so now is a great time to practice. Adjust your plan to allow for new expenses and priorities. If you don\u2019t have a budget yet, create one! It helps track your spending, encourages good saving habits and helps you plan ahead for home ownership costs. Create a budget line for home maintenance. It\u2019s typical to spend about $1 per square foot of your home every year on maintenance. The money you save by budgeting for home ownership before you buy can be used to purchase necessities for the house once you\u2019ve moved in.<\/p>\n
Keep Saving<\/p>\n
Saving up for a down payment and closing costs can feel overwhelming, but saving as much as possible consistently can bring you closer to your goal of owning a home. I recommend using a separate savings account to avoid the temptation to spend what you save. Using a CD or high-yield savings account can help your savings grow even faster. You can also set up automatic withdrawals from your paycheck deposits to avoid the temptation to spend rather than save.When working towards a large financial goal, it helps to have a strategy written down to keep you accountable.<\/p>\n
Build Your Emergency Fund<\/p>\n
Homes are bound to have unexpected emergencies like broken plumbing, mold problems or storm damage.I recommend setting aside 3-6 months\u2019 worth of living expenses, so you won\u2019t need to take on debt to make ends meet when major unexpected costs come up. This money is set aside for emergencies like home fixes, medical purposes or temporary layoffs. To avoid spending the money, keep it in a separate account from your daily checking account. <\/p>\n
Q: SHOULD PEOPLE PUT OFF SAVING FOR RETIREMENT TO BUY A HOME OR CONDO? <\/p>\n
It can be tempting to put off saving for retirement in order to save more for a home, but it doesn\u2019t pay off in the long run. Saving at an early age by contributing consistently towards a 401(k) or another retirement account can help you reap the benefits of compound interest.Even if you want to buy a home as soon as possible, avoid withdrawing money from your retirement accounts because you\u2019ll owe taxes and pay penalties on those funds. Saving money for your future may not offer as much instant gratification, but setting yourself up for a secure retirement can bring immense peace of mind down the road. <\/p>\n
\ud83c\udfe0 News From Your Neighborhood<\/p>\n
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