Low mortgage rates may drive home sales recovery
Nationwide mortgage rates are the lowest they’ve been in at least ten years, and such favorable financing may well be a driving force in the recovery of the real estate market in Miami-Dade, local experts say.
As of June 18, the average interest rate in the US for a 30-year fixed rate mortgage was 3.13% according to Freddie Mac, down from 3.84% at the same time last year. These low rates, Miami realtors say, are beneficial for buyers and sellers as they bring buyers into the market and give many sellers the chance to choose between offers. In addition, they may push buyers who would otherwise pay cash to instead finance their home purchase and spend their cash in other ways.
Tom Ringel, a real estate attorney and founding partner at Markowitz Ringel Trusty and Hartog, said interest rates are the lowest he’s seen in 40 years, and this is “bringing people out in droves because they can get a lot more bang for their buck.”
Buyers, Mr. Ringel said, “are coming in off the sidelines” for financing deals, which could be bolstered by pent-up demand created by the Covid-shutdown, during which many buyers and sellers were reluctant to see or show homes and many condominium complexes were closed to realtors.
Indeed, Nancy Corey, Coldwell Banker’s regional vice president for Southeast Florida, said the real estate market in Miami-Dade had an exceptionally strong first quarter before the shutdown and was trending toward a healthy recovery.
“All of a sudden everything stopped,” Ms. Corey said, referring to the temporary drop in sales and showings due to the shutdown, but “all of the drivers that were in the market in the first quarter, they’re still there for Southeast Florida.”
Miami Realtors’ “Quarterly Market Summary for Single-Family Homes Miami-Dade County” did in fact show a 7.9% year over year increase in first quarter sales. This percentage dropped soon after, with closed sales of the same kind experiencing a 31.6% year over year drop in April and a 45.8% plunge in May. However, May numbers also indicate an average “time to contract” of 44 days and an average “time to sale” of 90, suggesting that these numbers still reflect the effects of decreased showings and deals in earlier months. Statistics for June and July, experts said, may tell a different story.
“Summer is always busier,” said Mr. Ringel, as many families look to buy homes between school years, “but this summer is drastically different because of the rates.” Additionally, he said, many people who might have bought in March or April are looking to buy now.
According to Ms. Corey, with financing rates so low, even buyers who can afford to pay cash might look to finance home purchases or investments. “People are looking at the money,” she said, “and saying ‘I should be getting a loan here because the interest rates are so low. Why am I using my available cash?”
Charlette Seidel, the managing broker at Coldwell Banker’s Coral Gables office, echoed this, and said via email that roughly “70% of the sales coming through our office have financing, regardless of the price.”
“Buyers in the high end market see the value of the newer low rates,” she continued. “Many of them are taking a mortgage even if it is 50%-60% financing as they see the value of having some of their money invested elsewhere.” Medical doctors, she added, may also take advantage of special loan programs that offer 90%-100% financing.
Tobias Muhlhofer, an associate professor of finance at the University of Miami who has published research on real estate finance, said that while the economy is still feeling the effects of Covid-induced uncertainty, lower mortgage rates will probably factor into the buying decisions of those who are looking to move and stable enough to do so.
“If you are one of those people who is lucky enough to not have that much economic uncertainty (and) your job is fairly secure,” he said, “cheap mortgages (make it) more affordable for you to move up the ladder.”
Additionally, Mr. Muhlhofer said, many homeowners may look to refinance at this time. “Anecdotally,” he said, “it looks like there’s a lot of refinancing going on with mortgages, and that’s simply because rates have gone down.”