The Federal Reserve raised interest rates by 0.75 percentage points on July 27, 2022, the largest increase since 1994. In fact, this now puts the Federal Reserve’s key interest rate at its 22-year high. Interestingly, many real estate economists have been advising against these recent hikes citing concerns for the housing market and overall economy. Nonetheless, this is the Federal Reserve’s latest efforts to combat rising inflation, which has been at a 40-year high.
Interest rate impact on the real estate market
The impact of this interest rate hike on the real estate market is still being debated, but there are a few things that we can expect.
- Mortgage rates are likely to continue to rise, which will make it more expensive to buy a home. This could lead to a slowdown in home sales, as some buyers may be priced out of the market.
- The value of existing homes may start to decline. As interest rates continue to rise, more buyers will be priced out of the market. This decrease in demand could certainly impact home values as sales decrease accordingly. Of course, high demand markets such as South Florida should not see as big of an impact.
- The rental market could be affected. If home prices decline, some homeowners may choose to rent out their homes instead of selling them. This could lead to an increase in the supply of rental properties, which could put downward pressure on rents.
- Alternatively, as more potential home buyers are priced out of the home buying market due to interest rate hikes, they will need to resort to the rental market. This will increase the demand for rental housing and could even drive up rental prices if the supply does not meet the demand.
Overall, the impact of the Federal Reserve’s interest rate hike on the real estate market is still uncertain. However, it is likely to lead to a slowdown in home sales and a decline in the value of existing homes. The rental market could also be affected, as more homeowners choose to rent out their homes instead of selling them. Unfortunately, the reported national inflation rate is currently 2.97%, which is still higher than the target rate of 2% set by the Federal Reserve. When looking specifically at South Florida, our inflation rate as of July 2023 is estimated to be around 7%. In fact, the State of Florida has the highest reported inflation rates in the country. Thus this is presenting additional challenges for would-be home buyers.
Are you thinking about buying or selling a home in South Florida? We can help! Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download the free Florida Home Search app for your smartphone or tablet.