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Is a 4% mortgage the new 5% mortgage?

Is a 4% mortgage the new 5% mortgage?

Is a 4% mortgage the new 5% mortgage?  The real estate market has been hooked on low rates for over a decade, so let’s see how it responds to rising borrowing costs.  During the last boom/bust housing cycle, a 5% mortgage was the line in the sand.  Once rates  hit that level, the market would begin to slow.  We have previously discussed how that bar may now sit around 4%, since rates have been so low for so long.  We shall see.  If you look at the first chart today, you will notice that deal volume is dropping like a rock in Miami, Fort Lauderdale and Palm beach residential markets.  During the month of January, there were 4,206 condo sales and 3,309 single-family home sales.

residential real estate in South Florida

There may be a double-whammy of low-inventory and higher rates that will keep transaction volume low for awhile.  There were only 5,734 houses and 10,362 condos on the market last month, for a total of 16,096 properties.  This number continues to decline.  Take a look at this inventory chart dating back to 2011.  In January 2011 there were 30,768 houses and 41,473 condos on the market.  The total of 72,241 properties listed for sale was the peak residential inventory in South Florida.  After that, new foreclosure filings were halted and banks starting pulling their REO listings from the market.  Obviously the inventory was in decline after that point.  If the real estate market crashes again will the government step in with more bailouts?  As it stands now, anyone in real estate or construction seem to think this party will last forever.

4% mortgage may dent housing

Let’s run through a few more charts.  Here is a look at the average sale price of houses and condos across South Florida.  During the month of January, the average sale price of a single-family home declined 10% from December.  In December, the average sale price was $959,970.  You may want to remember that figure, since it may well have been the peak for this cycle.  Prices declined to $860,681 in January.  These are still crazy levels, but it certainly look like the top is in.  As for condos, they hit $495,636 in December (a new high) and dropped 5% to $470,755 in January.  Does this have anything to do with a 4% mortgage, or has this real estate cycle finally run out of steam?

4% mortgage may dent the housing market

A look at house prices for Miami-Dade, Broward and Palm Beach shows declines in 2 out of 3 markets.  Miami and Palm Beach dropped, while the Fort Lauderdale / Broward market increased slightly.

4% mortgage may slow real estate sales

As for the condo market, there were only slight declines.  As we have discussed in prior posts, the lack of single-family homes has pushed more buyers into the condo market.  That has provided some stability to the market for now.

Condo market in South Florida