Fueled by historically low mortgage rates and a large segment of the workforce transitioning to a virtual working environment, 2021 marked the highest level for housing market potential since 2007. For perspective, the average 30-year fixed mortgage rate was 2.9% for 2021. As of September 2022, this average rate has pushed to 6.1% and has now approached 7% in October 2022. Needless to say, these higher rates have dramatically impacted affordability for many prospective buyers.
The cascade effect of inflation
With inflation at a 40-year high, the Federal Reserve has been forced to act aggressively by raising rates and essentially resetting the housing market. As a result, home buyers have had to endure mortgage rates more than double over the past year. This has led to at least 18 million buyers being priced out of the market this year. To add to this lower buyer demand, more homeowners have decided to remain put as opposed to sell their homes and have to take on a higher mortgage interest rate for their subsequent home purchase. In fact, 93% of outstanding mortgages had mortgage rates below 6% in the second quarter of 2022. Therefore, we are only seeing a modest improvement in the inventory of homes for sale. Ultimately, this is resulting in a housing market that has become fairly stagnant.
As for what is next, this will be highly dependent on the level of inflation and the overall economy. There is no question that low mortgage rates super-charged the housing market over the past several years. In addition, the pandemic also brought upon significant changes with more employers implementing virtual work environments essentially removing all geographic barriers for many in the workforce. Also, the push for social distancing brought on substantial growth in the single-family home market, particularly in suburban areas. Lastly, we must not discount the largest demographic of homebuyers in the country. Affectionately known as millennials, these buyers are aging into their peak homebuying years. As a result, this should provide some continued support for homebuyer demand in the years to come.
Do you have questions about the South Florida housing market? Contact one of our knowledgeable team members at Live South Florida Realty, Inc. today! In addition, be sure to download our free Florida Home Search app for your mobile device.