Higher Fed interest rates push home prices up

With the Federal Reserve’s additional quarter point increase in interest rates to 5.5%, which became effective July 27, residential properties’ prices have also increased, and credit lending is tightening.

The Fed has increased interest rates four times this year, and since February rates are already a whole percentage point higher. Inflation in April in the Miami-Fort Lauderdale-West Palm Beach area was more than double the national average of 4%, at 9%, and according to a 2023 housing market report by SmartAsset, in May the average home price in Florida was 5% higher than last year.

The average single-family home price in Miami was $553,743 in May, 8.55% higher than last year. In Miami Beach, the average home price was $518,249, 5.55% higher than last year, and in Miami Gardens, the average price was $417,085, 9.46% higher.

Homes in Florida are selling for 14% to 27% more than they were two years ago, according to Home Construction Collective, an equity investment platform for new home construction, based in Orlando.

Current home prices and the price to finance a home are also affecting inventory. Starter homes accounted for more than 35% of all housing completions in 1970, according to data from Home Construction Collective. Now, they make up less than 10%.

Buyers who got into the market when interest rates were near 0% feel locked in to their homes, which further limits inventory. In addition, “Banks are seeing many commercial properties coming back to their balance sheets due to low utilization rates of office buildings and high interest payments, which leads to credit tightening and less available money for residential real estate,” according to information from Home Construction Collective.

Many aspiring homeowners are seeing themselves obligated to rent. According to a report by RentCafe.com, Miami-Dade County has emerged as the most competitive rental hub this summer.

On average, 24 prospective renters compete for one vacant rental unit in the county, according to data gathered by Yardi Systems. The average days a unit is vacant is 33 – 10 days less than the national average – and occupancy is 97.1%. In addition, 71.8% of apartment leases are being renewed, and despite a 0.9% increase in new units, the county “falls short of meeting rental demands,” according to the report. Miami is followed by North Jersey, Southwest Florida and Broward County in renting competitiveness.

According to data from the Miami Association of Realtors, single-family pending sales in Miami-Dade increased for the first time since November 2021, from 1,057 to 1,064 transactions. Showing appointments in South Florida also increased 7% year-over-year, from 218,973 to 233,675.

“Buyers are adjusting to the new norm of 6% to 7% interest rates, but Miami-Dade’s supply remains historically low, constraining sales in this high-demand market,” said Ines Hegedus Garcia, chairwoman of the association, in a statement. “We are keeping a close track of new listings to capitalize on the immense potential of Miami’s thriving market, where a surge in supply would naturally result in increased sales.”

Home sales in Miami actually fell 18.2% year-over-year in June, from 2,891 to 2,364 transactions, “because of elevated mortgage rates and lack of supply in certain price points,” said the report. Most of those sales came in May, when mortgage rates were peaking at 7.14%, compared to 5.27% in 2022.

Existing condo sales in Miami also decreased 22.4% year-over-year, from 1,752 in June 2022 to 1,360 this June.

The 30-year average fixed-rate mortgage averaged at 6.96% as of July 13, according to Miami Realtors. Just a week prior, they were at 6.81%, and a year ago, at 5.51%.

Historically, the monthly average for Miami-Dade new listings inventory is 20,302. Current inventory is at 9,027, down 57.9% from June 2019, which was 22,163.

For single-family homes, inventory has decreased 14.9% year-over-year in June from 3,422 active listings last year to 2,911 in June. Inventory of condos increased 5.1% from 5,817 listings last June to 6,116 this June.

Miami volume totaled $1.98 billion in June 2023, according to Miami Realtors. Single-family home volume dipped 13.66% year-over-year to $1 billion and condo sales volume fell 25.3% year-over-year to $941.7 million.