During the height of the COVID-19 pandemic, the Federal Reserve kept interest rates historically low, giving local homebuyers the power to borrow money incredibly cheaply. As we face a more normal landscape, the South Florida housing market looks completely different compared to the last two years of extraordinary performance, causing house hunters to grapple with suddenly high rates, rising home prices and a tight supply of properties.

The change has been dramatic: mortgage rates have more than doubled over this timeframe, severely limiting buyers’ ability to secure friendly loans. According to recent data released by the NAR, the monthly mortgage payment on a typical existing single-family home (with a standard 20% down payment) was $1,840 — an increase of 50% year-over-year.

While the Fed’s December rate increase was lower than anticipated, The New York Times reported that officials “indicated that interest rates would rise higher in 2023 than previously expected.” Many national experts in our industry believe housing prices go down when rates go up, but I don’t believe that will apply dramatically here in South Florida, where cash is king and interest rates have a muted impact. Based upon October 2022 home sales data from Florida Realtors, 28% of single-family homes and 49% of condos/townhomes were purchased with cash, and, according to Attom Data Solutions, in the last quarter 35% of all single-family home and condo sales were all-cash — an eight year high!

That being said, these escalating interest rates do impact most of our local buyers, even those in the luxury sector in which I specialize. In these cases, with so much uncertainty with South Florida inventory and rising interest rates, the agent and the buyer need to consider some “outside the box” solutions, which I offer here:

1. RENT NOW/BUY LATER: One client with whom I have been working for over a year was approved for a loan of $1.2 million but struggled mightily to find a Miami home that ticked all their boxes. (Not uncommon for buyers in their price range.) After visiting many homes during this timeframe, they have made two offers on two different listings only to be outbid by more aggressive buyers. In August, they took a break from their frustrating home search but called me last month ready to start looking again. When I explained that they would need to update their financing approval, they realized that their mortgage payment would now be much higher than it would be if they had been able to purchase back in May. They decided to rent a home for the time being, giving them time for prices, inventory and interest rates to stabilize.
2. BUY SMALL/GET BIGGER: I am also advising some of my rate-impacted clients to consider purchasing smaller homes that have the potential for growth, so when they are financially able, they can renovate and expand the property. (Perhaps through a lower-interest home improvement loan.) This would increase the square footage AND the value of the property in question.
3. BUY NOW/REFI LATER: Another smart option for buyers who fall in love with a particular home (but struggle with the idea of accepting a higher interest rate loan) is to “suck it up” and secure the home and mortgage now, with an eye toward refinancing the property once interest rates go back down.
4. FIX IT UP NOW/PROFIT LATER: Many rate-weary buyers shy away from listings that need a great deal of renovating, which is understandable. They already feel like their budgets are being stretched by the monthly mortgage payments, and the idea of forking over many more thousands of dollars to make the home livable is simply a deal-breaker. But a “big picture” vision for homes in this situation will reveal exceptional opportunities to get into desirable neighborhoods at lower costs and to invest in renovations that will maximize the property’s value over the long term.

Extending this “big picture” theme even further is advisable for any South Florida buyer concerned about rising interest rates. According to the New York Post, the number of people moving to Florida during the first months of 2022 was even higher than during the same period in 2021, when record numbers had already been reached. In particular, the Miami metropolitan area continues to be a leading beneficiary of migration, with thousands of highly skilled workers and entrepreneurs (especially in the financial and technology sectors) relocating to our shores.

We are uniquely situated in a high-demand, multicultural region that offers unbeatable live/work/play freedom, outstanding tax benefits and fantastic weather. I believe South Florida is poised for many years of sustained home value appreciation that will exponentially overshadow any small-term pain caused by rate increases.

Ivory Cooks is a board member of the Master Brokers Forum, an elite network of the top real estate professionals in South Florida, and a Realtor-associate with Coldwell Banker Real Estate. He can be reached at 305-965-9606 and/or ivory.cooks@floridamoves.com