The Roller Coaster of Florida Mortgage Rates is on the Up Swing
Home prices in Florida have been steadily climbing over the past few years as homeowners enjoy the benefits of a long awaited recovery, but this also means that Mortgage-Interest Rates are equally on the rise. In early July, CNBC reported that according to the Mortgage Bankers Association Weekly Survey, the average rate on a 30-year fixed conforming loan had moved to its highest level in two years - and this number is poised to keep going up. This upward jolt immediately caused refinancing applications to fall by more than 15% and application interest by 3%.
Experts have been predicting a trend such as this for some time, suggesting that the housing boom of May, where signed contracts on newly built home sales reached their highest level in five years, was doomed to hit a ceiling. The ceiling came in the form of spiking mortgage rates, which have caused pending home sales to soar and many closings to become uncertain. Many people worry that this trend will halt the forward progress of housing recovery in Florida.
What This Means
In May of this year, the national average fixed rate mortgage was at 3.35%. In midsummer, rates are popping up as high as 4.875%. This trend will pose some immediate difficulties for potential homebuyers, as it will ultimately make buying a home more expensive. To lay out some numbers, for a $200,000, homeowners will look to pay an average of $60,000 more in interest over a thirty year mortgage, or roughly $200 a month.
This will force many people to put their home buying plans on hold, or settle for buying a home with the buying power which would have bought them something considerably better just a few months ago. This is an especially difficult fact to deal with for those Florida buyers who have been waiting patiently since the recession to finally be able to qualify for a mortgage.
Notoriously, Mortgage Rates and Home Prices fluctuate throughout any given year - and these fluctuations are based on a number of factors not driven by consumers, but by Mortgage lenders and Treasury Yields.
Relationship of Mortgage-Interest Rates to Treasury Yields and Mortgage Lenders
One of the most interesting things about these developments are their relationship to factors not related to the consumer populace. The two factors which directly impact mortgage-interest rates are Treasury Yields and Mortgage Lenders (i.e. Freddie Mac and Fannie Mae.)
Treasury Yields refer to the total amount of money a person can make on bonds sold by the U.S. Treasury Department - a solution derived to help the United States pay off its colossal debt. When these yields increase, so do interest rates - and right now, that’s exactly what’s happening.
Recently, however, in addition to Treasury Yields pushing up the rates, a series of regulations have been imposed on Mortgage Lenders which are causing their costs to increase, and in order for them to stay afloat, they are forced to gain the deficit from their borrowers.
The Short of the Matter
Inevitably, as the last few years have effectively demonstrated in the Florida real estate market, what goes up, must come down. These rising mortgage rates that are causing house buying to fall statewide may just be the state’s way of leveling out after the boom - or, it may just be the first of a long line of minor hiccups on the road to recovery. Only time will tell.