Interest Rates Are Up, Now What?

Interest Rates Are Up, Now What?

  • Marcelo Steinmander
  • 10/4/23

Gone are the 3-3.5% or so interest rates and even the ones in the 5-6% realm. Times have changed.

Unless your endeavors have not been real estate related recently, there's a strong chance that you're already aware about this. We're dealing, after all, with numbers that are quite unlike the ones that were front and center during the decade that followed the 2007-2008 financial crisis. Now that the low rate environment that once prevailed across mortgage lending for years is gone, the new reality has fueled new conversations with our customers about what to expect and not expect.

If you're a current or prospective buyer, and unless you are part of the 27% of the national market that's buying without a mortgage, your loan estimate likely comes at an average rate of 7% or more on a 30-Year fixed rate mortgage (as of October 4th, 2023), more than double when compared to the 2.88% average seen about two years ago. With Miami's median prices now up 17% over the past year (Source: Redfin), the combination of higher prices and higher borrowing costs combined has made buying a piece of Miami real estate more expensive than ever before.

Sellers are also not immune to higher borrowing costs. For those with lower rates that bought or refinanced over the past decade, the motivation to sell is lower when it involves losing their current interest rate and having to purchase elsewhere at a higher interest rate. In some situations, such as relocations, some customers are deciding not to sell and rent their homes instead. This particular drawback has been seen across most market across the country and remains one of the reasons in which inventory remains low in most major U.S markets.

Rates are now higher. Prices are now higher. These are the new realities...what's the solution?

First off, let me be the first to say that it is ok to admit, whether you are buying or selling, that rates have caused an unforeseen impact on your real estate plans. Despite the circumstances, be assured that opportunities are still out there, waiting to be found. Here in South Florida, we have been implementing new strategies to better assist our customers over the past year and some of them have been very effective over the past few months. Below are a few:


The Market Keeps Moving
National headlines often fail to remind its readers that unlike other markets, real estate markets are local in nature. Miami's market could be very different than others and it's why local data is the data I use for pricing my listings. For more specific data, such as a particular neighborhood, subdivision or municipality, I recommend filtering the data even further by using hyperlocal statistics.
Despite seeing an increase in inventory of 18% compared to last year and a decrease in sales of 4.8%, Miami real estate is not sitting idle. Pending sales and months of inventory remain steady and Miami-Dade county overall is now averaging 4.5 months of inventory, which is still a strong indicator of being in a seller's market but showing signs of easing closer to being a neutral market. Local buyers and sellers are still buying and selling.
Time isn't standing still and neither are sales. Properties are still trading as long as the price makes sense.
Take Advantage of Your Specific Situation

If a real estate analyst states that the average days on market for Miami-Dade County homes has largely been the same over the past 12-15 months, I would agree. Based on the data across all parts of the county, it's true that the average number of days has hovered at just under two months on the market. It also shows why median pricing has continued to increase but not as drastically compared to the surge of demand seen during the pandemic.

The numbers do change, however, when looking at more specific segments of the market. This occurs because across every segment and section of any given market and especially in large markets such as Miami-Dade County. Below are two examples. One showing the average amount of inventory of all condos under $1M across all of Miami-Dade County and the other one showing the average amount of inventory of all condos under $1M in just one municipality (I used Miami Beach as an example).

Since one of the segments is a smaller segment of a much larger market, it's still part of the same inventory. But one clear distinction can be identified right away: In this particular segment of Miami Beach's market shown above, there is more inventory available for sale compared to the whole county.

More research goes into effect with each individual customer, but some of this data can be a clear indicator that buyers looking for a condo for under $1M in Miami Beach will have more inventory available to choose from. Using this formula, we have been able to provide better pricing strategies to sellers in markets with more inventory and identify good investment opportunities for buyers looking to buy at a competitive price. 

Buy Within or Below Your Means 
Whether we like it or not, higher borrowing costs have affected the purchasing power of buyers needing a loan in order to purchase. If you happen to be one of those customers, embracing a more frugal approach this year could be a blessing in the long run.
One of our most recent buyers, who was pre approved for up to $600,000, chose to buy a two bedroom for under $350,000 instead. In this case, I'll humbly believe that this condo was the better pick compared to the one bedroom, $575,000 listing that was also an option being considered at one point. Without considering taxes, maintenance fees and the larger down payment required on the larger purchase, the buyer was able to get a mortgage payment that's over $1,000 less and that could be lower down the road in the event rates come down.
The buyer could've chosen a very luxurious one bedroom unit with a better view and instead chose a two bedroom that's more spacious, almost the half the price, and that left him with far more money in the bank. That was a good sale.
Final Word

In this market, some buyers are choosing to wait until rates improve while others are still in the hunt. Some sellers are in the same situation, especially those looking to buy after selling. Every situation is different and we look at each individual case carefully. Our advice for the time being is to not let rates and low inventory discourage any potential but to also act with prudence. Real estate is best when discussed with long term goals.

Thank you for reading out latest post! For more information regarding this property or other Miami real estate, please contact us today! We can be reached at 305.674.4127 or via e-mail at [email protected]

Work With Us

Known for his superior expertise in current and past markets, Marcelo is always one step ahead in the industry with eyes and ears all around and unparalleled knowledge in the realms of new construction and most of Miami’s high-end developments.

Follow Us on Instagram