Rising Mortgage Rates Could Hurt Fort Lauderdale Housing

The Fort Lauderdale housing and economic outlook for 2017 seems to be filled with nagging questions about how gradually increasing interest rates may affect the continued improvement of the housing market. While interest rates have edged slightly upward in the last several weeks – most notably in response to the stock market's post-election gain – home mortgage rates are still comparatively low. But for how much longer? An extended period of rising rates may paralyze homeowners with low rate mortgages who would otherwise potentially be in the market to buy bigger or newer homes. Economists call such market conditions "rate lock," which could take a toll on housing demand during 2017.

Fort Lauderdale housing could be affected by rising interest rates.

The past Fort Lauderdale housing outlook has enjoyed a seven-year run of near record low mortgage interest rates. That has encouraged homebuying and has increased home values dramatically since the housing crash of nearly a decade ago. Yet, the aforementioned increase in mortgage rates since the election has real estate professionals and prospective homebuyers a little on edge. Higher interest rates, of course, translate to higher monthly mortgage payments. That can cause existing homeowners to stay in their homes a little longer rather than trading up. As one real estate professional put it, "It doesn't take much to turn off the faucet in this market because inventory is so low and prices have gone up so quickly." The most recent mortgage interest rate increase boosted the monthly cost of owning a typical home in United States by slightly more than $70 per month. That equates to roughly $26,000 over the term of a 30-year fixed rate mortgage loan. While $70 per month is not a substantial amount, it probably has already had an impact on marginal borrowers concerned about additional expenses. Experts fear another half-point rate increase could impact even the more qualified borrowers.

In addition to the affordability aspect and the psychological impact that a higher monthly payment may have on a family purchasing a home, mortgage qualification may also become an issue. The Fort Lauderdale housing market has already seen some households who spend 35% or more of its income on mortgage payments. Most experts recommend that debt-to-income ratios fall between the 30% to 33% range. As interest rates rise, the debt-to-income ratio will be strained causing some lenders to reconsider whether a borrower may qualify or not.

According to CoreLogic, Inc., roughly 66% of homeowners in the United States who have mortgages enjoy rates less than 4.5%. Economists say rates would probably need to increase above 5% before homeowners face the "rate lock" dilemma mentioned earlier. And that's where the concern begins to form. Because of the strengthening U.S. economy, the Federal Reserve will likely increase short-term interest rates this month. While the rates on Fed funds have no direct correlation to mortgage interest rates, an increase by the Federal Reserve would likely send a message that interest rates in general will likely rise – even if only slightly. Home mortgage interest rates are more closely tied to the yields on U.S. Treasury bonds. Those yields usually rise during inflationary periods, and while economists predict mortgage rates will increase in 2017, nobody really owns the proverbial "crystal ball."

Interest rates have risen largely due to the improved economy. In addition, investors are gambling that increased government infrastructure spending along with resultant tax cuts will continue to accelerate growth. The underlying hope is that the additional growth will spur increased wage growth, and higher wages should offset the increases in higher mortgage payments. However, one economist warns that since so many American homeowners have low rates on their mortgages, it could result in an ironic disincentive by encouraging homeowners to pursue employment in other cities if it means their mortgage payments will be higher.

So, what does all this mean for the Fort Lauderdale housing outlook moving forward? If history is any indication, rising interest rates can impact the economy quickly and dramatically. Mortgage interest rates in 2013 increased almost a full percentage point to 4.5% on the heels of investor predictions the Federal Reserve would decrease its bond buying program. The result was a decline of 8% on the sales of previously owned homes over the next six months. In addition, sales price increases dropped from an average of 9% to roughly 5%. Therefore, if 2013 is any indication the market could potentially experience a cooldown in home prices.

Of course, it remains to be seen what affect increased interest rates – if they do occur – will have on the Fort Lauderdale housing market and the resulting economic outlook. However, one thing to remember is that even interest rates in the 5% range still are relatively low when compared to other times in American history. Naturally, home prices continue to rise, meaning mortgage loan amounts are higher than ever before. However, going forward there is light at the end of the tunnel when it comes to home affordability. History has proven more times than not that even in the face of housing challenges home affordability is a luxury still readily available to most Americans. Whether it's more affordable mortgage products with more favorable terms and conditions or more affordable housing units entering the market, the bottom line is that housing is too big a piece of the U.S. and world economy to be adversely affected for long.

We've weathered such storms before and with the exception of the housing crash of a decade ago, the industry has rebounded steadily and has learned from its mistakes. Time will tell if the slight interest rate increases will lead to a slowdown of the housing recovery, or if it will provide the impetus for creative lending, improved mortgage products, more affordable housing and sufficient motivation for first-time homebuyers to buy. While the challenges can be daunting, the industry remains hopeful that only slight interest rate increases will occur, resulting in minor fallout that can be absorbed by the market through greater home inventory and a continued steady demand.

You can find more articles pertaining to the Fort Lauderdale housing outlook in the "Fort Lauderdale Economy" section of articles just below Fort Lauderdale Real Estate Categories in the column to your right.

Fort Lauderdale Economy and Housing: Future Trends to Watch

The Fort Lauderdale economy and housing, of course, is a subset of the national economy and housing market. As such, it’s important to keep abreast of recent changes and future trends in the economy – and how they will ultimately affect the overall housing market. Let’s examine five areas of interest in the economy and what we can expect in the coming months.

Interest Rates

The Federal Reserve recently opted not to increase short-term interest rates – at least for now. Despite Fed Chair Janet Yellen’s suggestion that the potential for a slight uptick has increased in recent months, the biggest action the Fed took was a notable inaction. While there were few clues about when the Fed may raise interest rates again, some economists say a rate increase could occur sometime soon. However, in the absence of improved economic indicators over the next several weeks, any rate hike could be delayed until closer to the end of the year. As a reminder, any expected increases in the Fed interest rates will probably do little to impact long-term mortgage interest rates available in the Fort Lauderdale economy and housing.

Home Sales

The Fort Lauderdale economy and housing market has recently endured a mixture of bad news and good news regarding home sales.

The Fort Lauderdale economy and housing market has recently endured a mixture of bad news and good news regarding home sales. The bad news is existing home sales continued to suffer, while the good news is new home sales have performed extremely well.  A recently published report by the U.S. Census Bureau showed total sales of new single-family homes increased 12.4% compared to the previous month. In addition, sales were a whopping 31.3% higher than this time last year – the highest level since the fall of 2007.

Existing home sales comprise a higher percentage of the nation’s total real estate and housing activity. While new home sales flourished, sales of existing homes fell 3.2% from the previous month and are down 1.6% year-to-date, according to the National Association of Realtors (NAR). Ironically, mortgage interest rates are near all-time lows, helping to keep housing affordable in the face of increased home prices. Both the Census Bureau report and the NAR report listed low home inventory as ongoing problems. Limited existing home inventory has been characterized as the culprit in the decrease in sales in that category.

While home sales in the Fort Lauderdale economy and housing market are expected to end the year on a high note – largely the result of a robust spring selling season – the housing market won’t reach its maximum potential this year. It’s clearly a case of supply not meeting demand. New construction, too, has failed to add enough units to the marketplace to keep pace with demand. Low inventory puts constraints on what willing buyers have available to purchase. In addition, new and existing homes that are selling are selling faster – and for more money. This usually means there are home buyers waiting in the wings to purchase when a wider variety and better choices become available.

Gross Domestic Product (GDP)

A recent report of the Bureau of Economic Analysis (BEA) revised the U.S. gross domestic product (GDP) downward for the second quarter of the year. After the first quarter’s growth of nearly 1% (0.8%), the BEA reduced the GDP growth to 1.1% annualized for the second quarter. Contributing to the downward revision were less-than-spectacular exports, which were also bumped down slightly. Imports were revised upward, however, and the relationship between exports and imports – as one economist explains it – all but cancels out each other. While exports are an economic growth plus, imports tend to stifle expansion. The bottom line:  Revisions to the U.S. trade activity made little impact on improving the nation’s economy.

Business investment has now declined for three consecutive quarters. For their part, economic analysts continue to fret about business investment – especially since the recent trend of declining numbers represents the first time the U.S. has experienced three consecutive declining quarters in nearly seven years. Business investment is typically a good indicator of gains in productivity, which in turn produces profits for corporations and fuels greater earnings for the labor sector. Naturally, when wages improve, so do consumer confidence and spending.

Consumer Sentiment

A report recently published by the University of Michigan Surveys of Consumers stated U.S. consumer sentiment had fallen to its lowest point in five months. While the drop was only 0.2% over the previous month, it was down 2.3% for the year. University economists said the decrease in consumer sentiment was due, in part, to higher than expected expenses and smaller than anticipated gains in income – especially as they relate to younger aged households.

While economists stopped short of indicating to what degree the looming presidential election concerns have on the impact of consumer sentiment, there’s reason to suspect there is an effect. Consumers, for the most part, may be satisfied with their current financial situation, however they are concerned about the future and what changes – good and bad – the election results will bring over time.  Among the concerns are the outlook for interest rates, tax considerations and global markets. Despite most consumers agreeing that a recovering job market, record low interest rates, steady incomes and an improving stock market all contribute to their financial health, few anticipate the current state of the Fort Lauderdale economy and housing to continue.

The Job Market

The recently announced merger between beer makers Anheuser-Busch and SABMiller to create the largest brewing company in the world will eliminate thousands of jobs across the globe. While it may not immediately affect you – unless you’re an employee of one of these two companies – there are some potential ramifications. Economists believe the layoffs resulting from the merger could increase a slowly growing nationwide trend of companies trimming their workforces. A layoff report published by a respected employment consulting firm said that layoffs increased 19% during the month of July – for the second consecutive month. To put that into perspective, however, layoffs from January through June were down 8.7% compared to the same period last year. While the July layoffs were notable, there’s no immediate concern wholesale layoffs will continue. It is, nevertheless, worth keeping an eye on in the Fort Lauderdale economy and housing, as well as elsewhere.

You can find more articles pertaining to the Fort Lauderdale  economy in the "Economy" section of articles just below Fort Lauderdale Real Estate Categories in the column to your right.

Fort Lauderdale Housing Outlook: Rents to Level Off

If you’re renting in the Fort Lauderdale housing market, now hear this: it isn’t easy to buy a house. It may be easier to stay put. That’s because home price gains are picking up, while rents are leveling off — despite the fact they’ve skyrocketed in recent years. Some economists predict that by the end of this year, rents could actually rise at a slower pace than income levels in many real estate markets throughout the U.S.

Zillow Weighs in on Fort Lauderdale Housing

If you're renting in the Fort Lauderdale housing market, it's not easy to buy a house. It may be easier to stay put.

According to Zillow, the annual rent appreciation rate is forecasted to rise by 1.1% by December 2016. This would represent a decrease of 4.5% in the same appreciation rate for the year ending December 2015.

With home sales prices rising at what has been termed by some economists as “unhealthy and unsustainable,” rents aren’t expected to approach that rate of growth. The rising home prices are the result of fewer listings — a shrinking supply –– and increasing demand. In December 2015, the supply of homes on the market was the lowest in ten years. In addition, annual home sales price gains — meaning the average year-over-year increase in home value –– rose to 5.3%.

Fort Lauderdale housing experts say the hot markets will continue to enjoy brisk activity during 2016. However, rents aren’t expected to rise as fast as they have in the recent past.

Despite the slowdown in rental appreciation, renters will continue to see gradual rent increases. They will just be less dramatic than the increases in the last several years. Strong growth in multifamily apartment dwellings in recent years has helped boost the supply of rental units in major metropolitan urban markets. The trade-off, however, is that developers have been slow to do the same thing in the smaller suburban markets. Renters in those markets seem to be struggling the most with short supply and higher rents. Rental property developers have shied away from settling for lower rents. They prefer to charge top dollar in order to recoup the high cost of construction — especially in the Fort Lauderdale housing market where available land is expensive.

Get more updates on the Fort Lauderdale housing market and news that affects the market by checking back here from time to time, and by checking out the other articles in our Fort Lauderdale Real Estate News section of articles under Fort Lauderdale Real Estate Categories to your right.

Fort Lauderdale Housing: Emerging From Underwater

Recent Fort Lauderdale housing statistics — included as part of third quarter housing results reported by Zillow –– show that roughly a million U.S. homeowners finally owe less than their homes are worth.

Water Receding in Fort Lauderdale Housing Market?

Fort Lauderdale housing continues to emerge from being underwater.

According to the Zillow report, the negative equity rate among homeowners in the U.S. dropped to 13.4%. That’s a 1% decrease from results compiled during the second quarter. The negative equity rate was 16.9% a year ago. Historically, the expected norm is a negative equity rate of 5% or less.

Housing experts say the quick rise in home values have helped the negative equity improvement. Home prices went up during October, increasing 6.8% from the same month a year ago. Nationwide, the home price increases have collectively lowered negative equity to almost $60 billion in the last quarter.

Despite these remarkable improvements, negative equity is still higher than it should be. And while a larger number of borrowers are now able to refinance because of increased values, a huge number of homeowners are still underwater. Analysts estimate over 6.5 million homeowners owe more on their mortgages than their home is worth. In addition, roughly 30% of U.S. homeowners with mortgages are still technically in a negative equity position. They lack the needed equity to make a down payment on their next home or can’t afford to sell their current home and move.

Some markets throughout the U.S. are faring better than others. Prices vary across the country and the recovery may be slower in some areas. Effective negative equity rates in U.S. housing markets range from a low of 8% to a high of over 30%.

A market with a higher negative equity rate has a smaller number of houses on the market. This usually impacts first-time buyers the hardest, since negative equity usually affects lower-priced homes. The nation’s supply of affordable homes for sale is short overall, but especially so for entry-level or “starter” homes. Fort Lauderdale housing experts agree the biggest obstacle to a continued housing recovery is the lack of homes for sale.

With the number of repeat buyers continuing to shrink over the past ten years, there are challenges ahead. Tighter credit standards — including requiring higher FICO credit scores — have made it harder for many buyers to qualify for loans to buy larger or higher-priced homes. A decade or more ago, homeowners trading up to another home were in the 30-40 age range. Today they are much older, in the 50+ age range.

The housing outlook, therefore, is of concern to some. Inventory continues to drop resulting in a rise in home prices. And while home equity is improving, the gains often have a negative impact on the overall health of the Fort Lauderdale housing market.

For additional information and more articles on the Fort Lauderdale housing market, see the right side of your screen under Fort Lauderdale Real Estate Categories. 

Fort Lauderdale Housing Snapshot October 2015

The Commerce Department recently reported housing starts in the Fort Lauderdale housing market and other parts of the U.S. dropped to a seven month low in October. And while single-family home construction in the South fell, a greater-than-expected surge in building permits indicate housing is still relatively strong.

A Closer Look at Fort Lauderdale Housing

A surge in building permits indicate Fort Lauderdale housing is still relatively strong.

Housing starts decreased 11% to slightly over one million units (adjusted seasonally) representing its lowest level since March. Despite that news, October housing starts remained above one million units for the seventh month in a row — one sign of a continued recovery to the housing market.

Experts say a stronger labor market along with a greater number of young adults leaving the parental "nest" has given increased support to the housing sector.

While residential construction makes up only about 3% of the gross domestic product (GDP) of the U.S., housing greatly affects the overall economy. Higher home prices mean increased household net worth and increased consumer spending. In addition, housing has helped the GDP grow for the last eighteen months. It has also cushioned the blow of weakened manufacturing.

Single-family home starts dropped 2.4% to 722,000 units. Multi-family housing starts dropped a little more than 25% to 338,000 units.

Despite housing starts suffering in some areas, the number of actual building permits issued was encouraging. Building permits increased 4.1% to a 1.15 million unit level last month, with single-family permits rising almost 2.5% to the highest level since December 2007.

Building permits for multi-family units increased nearly 7%, giving housing experts optimism that the market is on stable ground. The increase in permits for multi-family units — primarily apartment buildings — is a result of pent-up demand for rental units.

For more articles and information on the Fort Lauderdale housing market, see the right side of your screen under Fort Lauderdale Real Estate Categories.