Understanding Inflation and High Interest Rates: What They Mean for Florida Homebuyers

Many Florida homebuyers are still feeling the residual impacts of COVID-19, especially in an environment of inflation and high interest rates. These factors can put a squeeze on buying power, which impacts Floridians' every financial decision—including buying a home.

However, that doesn't mean your dream of homeownership should be shelved for the foreseeable future. Instead, take the time to understand more about how inflation and high interest rates may impact the real estate market. It could help you make better decisions about buying your home.

How Can Inflation and High Interest Rates Impact Housing?

Inflation measures the rising costs of goods. The Bureau of Labor Statistics (BLS) looks at how a specific basket of goods changes over time and compares it to past periods. While a small amount of inflation, around 2% to 3%, is typical, the past year has seen inflation at its highest since the early 1980s.

That means goods and services cost more, and your dollar doesn't go quite as far as it used to. You've probably felt this at the grocery store. Many factors go into inflation. But a few turbulent years, including the pandemic, supply chain issues, and international conflicts have contributed to price increases across the globe.

The Federal Reserve has raised its benchmark interest rate in an effort to help cool inflation rates. By doing that, the Fed hopes consumers buy less and demand reduces, bringing costs down, which will lower inflation.

How Do These Changes Impact Homebuyers?

While mortgage interest rates don't directly tie to the benchmark rate, mortgage rates tend to rise when the benchmark rate does. As a result, those looking at loans, such as a residential mortgage, are seeing higher rates than a few years ago.

A higher mortgage rate for a first-time homebuyer in Florida means a couple of things. First, your mortgage's monthly payment may be higher than it would have been in the past. In addition, you may not be able to afford as much house now as you could have a few years ago. Both these factors can play a role your home-buying decisions. These strategies can help.

Tips for First-Time Homebuyers in Florida

Although the economy is not quite as friendly for new homebuyers as it has been in the past, many Floridians, including first-time buyers, are finding homes.

Here are a things to consider to combat high-rate environments when house-hunting:

1. Look at your numbers: Buying a home is one of the biggest financial decisions you'll make. Running the numbers can help you understand what you can afford and how interest rates may impact purchase power. Estimate your monthly payment with City National Bank's Mortgage Calculator.
2. Strengthen your credit score: Your credit score impacts the types of financing you get for loans. Generally, the better the credit score, the more attractive the rates. Improving your credit score now may help get better rates when applying for a mortgage.‍
3. Adjustable-Rate Mortgages (ARMs): ARMs are mortgage loans with interest rates that can change periodically. They often be a solution to high interest rates since they start with a lower interest rate than fixed-rate mortgages. It is important to keep in mind the rate can adjust after a certain period.‍
4. Increased Demand and Competition: If interest rates decrease, it could lead to increased demand in the housing market as more buyers might enter the market to take advantage of lower rates. This could potentially drive up home prices and create more competition among buyers. ‍
5. "Date the Rate, Marry the Home": This phrase suggests that while interest rates are an important consideration, it's crucial to focus on finding the right home that meets your needs and fits your budget. Mortgage rates can be modified or refinanced later if they become more favorable.‍
6. Comparing Payments and Appreciation: It's essential to compare the potential payment difference between higher and lower interest rates with the rate of home appreciation. Waiting for rates to go down might save you money on monthly payments, but if home prices appreciate significantly during that time, you could end up paying more for the same property.‍
7. Cost of Waiting: The "cost of waiting" refers to the potential financial impact of delaying a home purchase. If you wait for rates to go down, you might benefit from lower payments, but you also risk missing out on favorable market conditions or potential appreciation in home values.

Ultimately, the decision to wait for rates to go down or to purchase a home with an adjustable-rate mortgage depends on your individual financial situation, long-term plans, and your outlook on the real estate market.

Contact our lending specialists to better understand the local housing market and determine the best course of action based on your individual needs.

With over 75 years of experience serving homebuyers throughout Florida, City National Bank of Florida's Residential Mortgage team can work with you to find a loan that meets your unique needs. Visit our application portal to get your personalized rates.

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice.

‍Sources: 

www.bls.gov

www.federalreserve.gov