Housing market suffers ‘collateral damage’ from rising rates

The story of how Salvatore Saccoccio III came to live in Orlando is a familiar one: A New York City resident finds himself unemployed in the pandemic and decides to move with his wife to Florida where life is cheaper, work is available and he can own a home.

Saccoccio had lived on credit while he was out of work, so his credit score dropped. He had to buy a car and car insurance. And as a chef, Orlando wages weren’t what he was used to getting.

“In Florida, you have different expenses than in New York City,” said Saccoccio, 37. “… The jobs here just don’t pay.”

Saccoccio, whose rent is $2,300 a month, couldn’t buy a house at first because the market was so hot anything in his price range was snatched up, often by cash buyers. Now that home inventory is rising, his credit score and high debt-to-income ratio mean he can’t afford a home of his own.

As the Federal Reserve has more than doubled interest rates this year to curb inflation, would-be homebuyers have been pushed out of the hunt, no longer qualifying for mortgage payments that have nearly doubled since last year.

“The home you could qualify for at 3% is not the same home you could qualify for at 6%,” said Tansey Soderstrom, president of the Orlando Regional Realtor Association.

In November, Central Florida home sales hit their lowest point in nearly four years, according to the association.

Whenever interest rates rise, “the housing market is always collateral damage,” said Geoffrey Turnbull, a real estate economist at UCF.

The Fed also has pulled back from buying mortgage-backed securities over the summer, according to Turnbull. “That puts upward pressure on interest rates,” he said.

But Amanda Gribbin, who opened Emajin Realty in Sanford this year, say the bigger interest numbers are scaring her clients.

“They get scared by that interest rate, thinking they’ll be locked in for life,” Gribbin said.

What she has been telling prospective buyers these days — along with the common refrain of “marrying the home, not the rate” — is that buyers have more power than they’ve had in the past two years.

Sellers are willing to negotiate more, Gribbin says, and some are offering incentives such as interest rate buydowns, where the seller pays some of the cost to keep the interest rate low for the buyer for the first couple of years.

“Then they can refinance,” Gribbin said.

And Turnbull points out that increasing inventory — which has risen for the past nine months — isn’t just buyers getting out; it’s also more sellers being willing to put their houses on the market.

Soderstrom says the people most under pressure are real estate agents.

“You really have to work now,” she said, contrasting the slowdown with the frenzied buying earlier this year. “No more selling houses with dirt on the floor for thousands over asking. Things have to be priced right, and they have to be show ready.”

Gribbin says getting the price right is key.

“If it’s priced right, it’s selling,” she said, saying listings under $300,000 are still getting multiple offers, just fewer cash and investment buyers.

Falling sales and more inventory just mean the balance is returning to the market, Gribbin said.

“Something that may have taken two weeks a year ago now takes over a month,” she said. “It’s still selling, it’s just taking longer.”

Prices are falling, too. Orlando’s median home price, $360,000, has dropped by $27,000 since its height this summer, but it’s still up more than 30% year-over-year.

Turnbull says not to expect prices to dip much more, however.

“When we talk about prices moderating, we’re really talking about them not rising as quickly,” he said.

Prices tend to fall more slowly than they rise as buyers will buy anything they can afford but sellers, rarely under pressure to sell, will mostly hold out until they can make a profit, Turnbull explained.

The Fed hiked rates again in December, though the 30-year mortgage rate has fallen 0.7 percentage points from its 7% high in November, according to government lending institution Freddie Mac.

Turnbull says it’s unlikely that the Fed will cut rates in the next year.

“Let’s hope the Fed doesn’t turn on a dime and go the other way,” he said. “That just means that we’d be stuck with high inflation for longer.”

A steady, balanced market might sound ideal to professionals, but for Saccoccio, who says he is driving for Uber 70 hours a week to make ends meet, he doesn’t see any opportunity ahead to buy.

“I keep looking at stuff, but my financial situation hasn’t really changed,” he said.

This article is written by Trevor Fraser from The Orlando Sentinel and was legally licensed via the Tribune Content Agency through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.