What Do These Interest Rate Hikes Mean to Home Sellers and Buyers?

Welcome Message from Stacy Kitchell

Managing Broker of Kitchell Group and former Corporate Real Estate Financial Analyst (linkedin.com/in/stacy-kitchell-2065903a)

Welcome and thank you for visiting our website!  Lots of great information for you below.  We are here to educate you and, if you choose, to consult with you on what is the best course of action for you.  Maybe it is doing nothing at all – and that is okay.  We want to get to know you and to help you when the time is right.  My team and I have grown our business based on doing what’s best for our clients and potential clients.  That hasn’t and won’t change. 

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Stacy Kitchell

 

 

What’s going on with interest rates and how will that affect home sellers and home buyers in Tampa Bay? 

 

6/30/2022

by Stacy Kitchell

Managing Broker of Kitchell Group and former Corporate Real Estate Financial Analyst (linkedin.com/in/stacy-kitchell-2065903a)

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OK, first — the big message here is that there is no need to panic.  Yes, as Goldman Sachs predicted early in the week of 6/12/2022, the Federal Reserve increased the federal funds rate by a historical .75%, the largest one-time increase since 1994.  In addition, The table below shows Goldman Sachs’ projected Fed Rate increases in the coming months.   

It is important to understand that long-term rates for fixed-rate mortgages are not directly correlated to the federal funds rate.  Therefore, if the federal funds rate increases by .75%, it DOES NOT mean that long-term interest rates for 30-year fixed rate mortgages will increase by the same rate. 

  • Long-term fixed rate mortgages – are more closely tied to the 10-yr. U.S. Treasury Bond.  The difference between long-term mortgage rates and the 10-year U.S. Treasury Bond represents the additional risk investors believe they bear for holding long-term mortgage debt vs. the 10-yr. U.S. Treasury Bond.  Great article to read: How Interest Rates Are Set (Source: Bankrate.com
  • Short-term Interest Rates – The federal funds rate is more closely tied to shorter-term rates such as home equity lines of credit, credit cards, car loans, adjustable rate mortgages, and savings accounts. So, pay off those credit card balances and consult a mortgage broker to discuss potential benefits of refinancing an adjustable rate mortgage, if you have one.

As of 6/30/2022, after the .75% Fed Rate increase, the Freddie Mac average loan commitment rate was 5.70% (source: https://www.freddiemac.com/pmms). So, about a .50% increase as of 6/30/2022 – not .75%.   However, this rate changes daily based on investors’ perception of risk among other factors.   

Based on a $400,000 loan balance and the Freddie Mac Avg. Loan Commitment rate as of 6/30/2022, monthly mortgage payments have increased by approx. $117.74/mo.  With each Fed. meeting (7/26-7/27, 9/20-9/21, 11/01-11/02, 12/13-12/14), I will update the table below, so mark your calendars to visit for updates.  

WHAT INCREASING RATES MEAN FOR HOME SELLERS IN TAMPA BAY

  1. As shown above, buyer monthly mortgage payments will be much higher but wages will most likely not keep up at the same rate and this could put downward pressure of sale prices. 
  2. Less multiple offer situations, an increase of Days on Market and an increase list-to-close time frames/absorption rates. less showings/lower attendance at open houses (all of these are already happening in many neighborhoods in Tampa Bay).
  3. Stock markets may be volatile.  STOCK MARKET INDEXES ARE DOWN SIGNIFICANTLY YEAR-TO-DATE.  As of 6/30/2022, Dow Jones (-17.75%), NASDAQ (-30.98%), & S&P 500 (-22.92%).  Consequently, many people are feeling less wealthy, including out-of-state buyers (e.g.  Northeast, California, Midwest), who’ve been paying in excess of appraised value for homes which could also negatively impact future sales prices. 

But, no one (including me) has a crystal ball to predict the future…  We definitely recommend speaking with your financial advisor and accountant before making any final decisions.  

Kitchell Group Recommendations:

  • Sellers Who Are Selling & Buying –  Sell now or soon.  If you need or want to move and want to own, while prices are strong and before future interest rates increases.  Negotiate a lease-back on your current home (sell and then lease-back for a few months from the new owner) to give you time to look for a new home.  We have negotiated over 75 lease-backs and 7 lease-backs already this year.   Call us to discuss!
  • Sellers Selling & RentingSell now or soon.  Home sale prices may level off or go down and rents are expected to go up due to less buyers qualifying to buy homes.  Call us to discuss a plan of action.
  • Sellers Who are Selling Only (2nd home/inherited home)Sell now or soon before prices are affected by interest rate increases.  Call us for a free estimated value.  And – check with your CPA for potential capital gains tax impact.
  • Investor SellersDepends on your long-term goals, if property is paid off, your specific tax bracket/needs.  Consult with a financial advisor or CPA to make a plan.  Also, depending on where your current home is, you could sell in a weaker area and invest in a growing area.  Call us for info on fast-growing or up-and-coming areas of Tampa Bay and questions to ask your CPA on possibly avoiding capital gains tax.  If you need a CPA recommendation, please reach out.

WHAT INCREASING RATES MEAN FOR HOME BUYERS IN TAMPA BAY

  1. Interest rates are projected to increase several times this year – Timing is key!  Rate increases may reduce the price range you can afford.  Home prices in Tampa may not decrease for many months or even this year since we are still a top destination city (#2 in country in June 2022).  
  2. Less Competition for Homes Could Be An Advantage for Buyers – Some buyers who don’t need to buy or are nervous are stepping back, resulting in less competition and opportunity to negotiate.  Our listings in June were the first in a while NOT to receive multiple offers.  Days on Market are increasing.  Buyers have to be in the game to win.     
  3. Builders Are Slashing Prices to Sell Homes in Fast-Cooling US Markets – Builders are already seeing less demand and are offering more incentives (a good thing for buyers) and they have increased their marketing, too. I started noticing 2 weeks ago that I was receiving a LOT more marketing Emails from MULTIPLE builders – some I have not heard from in months or 1+ years since homes were selling themselves.  
  4. Cheaper to Buy Than to Rent – Since many buyers won’t be able to qualify for affordable homes due to interest rate increases, rents are predicted to rise.  

Kitchell Group Recommendations:

  • First-time homebuyers – Buy now if you can afford it but don’t become house poor.  Timing is key.    Call us to brainstorm and receive a free financial analysis of new and resale home purchases.
  • 2nd Home Purchases – Wait, unless money is no issue and you have cash.  Interest rates on 2nd homes are increasing due to banks considering 2nd homes a higher risk in the future.
  • InvestorsDepends on your long-term financial goals.  Consult with a financial advisor or CPA to make a plan.   Call us for info on fast-growing or up-and-coming areas of Tampa Bay and questions to ask your CPA on possibly avoiding capital gains tax.  If you need a CPA recommendation, please reach out.
 
Questions? Send us a note via our Contact Us Page.  Thank you for visiting and have a great day!  
– Kitchell Group Staff

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The Kitchell Group is an award-winning team with almost 400 homes and $125M in volume sold.  We are a cohesive group of financially savvy, technologically strong Realtors and we use this knowledge to provide great advantage to our clients.  We cover 6 counties in Tampa Bay, including Hillsborough, Pinellas, Pasco, Manatee, Sarasota, Hernando and Polk.  We specialize in Florida new construction, Florida pool homes, Florida 55+ communities, Florida custom homes, Florida bungalows, Florida townhomes, Florida beachfront condos, Florida waterfront homes and more!  Because of our large number of transactions closed with homebuyers and home sellers, we have a vast amount of real estate knowledge to share with our clients to help them have one of the safest, lowest stress and financially educated experience around.  And we are nice and fun to boot.  We LOVE our clients and they often become family to us!  Let us welcome you into our family.  🙂

 

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