Booming home values have made the housing market challenging for buyers, but now rising interest rates are causing buyers to recalibrate which houses they can afford.
In South Florida, the average monthly mortgage payment for a new mortgage rose 61% compared to the year before as home prices rose and interest rates shot up, according to an analysis from Zillow.
The increase in South Florida is higher than how much mortgage payments increased on a national level. The average monthly payment for a home on a national level increased 50% when compared to a year ago.
“We expect that sometime in the coming months, price growth and rising mortgage costs will slow demand, as affordability challenges keep many would-be buyers out of the market, and inventory will further rise,” Zillow economist Nicole Bachaud said.
Currently, rates for a 30-year fixed mortgage are around 5.4%, significantly higher than the rates of 2.75% to around 3.25% that drove the housing boom in the beginning of the pandemic.
The rise in mortgage rates is adding more to potential buyers’ budgets, and thus lowering the home prices they can afford, according to the analysis from Zillow.
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Currently, the average monthly new mortgage payment for a typical home in South Florida, assuming 20% down, is around $1,843, which is $702 more than a year ago. This is due to both rising home values and rising interest rates.
Last year, the average monthly payment was around $1,141. At the start of the pandemic it was even lower: $1,078.
“Three huge factors on the monthly payment have been working against affordability: higher prices (higher loans), higher rates, and homeowners insurance costs have been increasing as well,” said Craig Garcia, president of Capital Partners Mortgage in Coral Springs.
“Essentially you are adding a car payment to the house payment you could have gotten 6 months ago,” he added.
Potential homebuyers aiming for a certain monthly payment must look for homes in lower price points, or look for smaller homes or even in different cities or neighborhoods, Bachuad said.
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A buyer last year who could pay a $1,500 monthly mortgage could have afforded a house for around $340,000, assuming a 20% down payment. Now, that same buyer would have to find a house for around $275,000 in order to establish the same monthly payment.
As interest rates rise, mortgage demand has been dropping over all in the country. The latest numbers from the Mortgage Bankers Association which tracks mortgage applications on a national level show that purchase application declined 14% last week compared to the same week a year ago.