Jan. 27, 2022
Interest Rate Increase
How They Are Cutting Into Your Purchasing Power
Transcript:
Good morning, my name is Brenden Rendo.
I'm with the Homes Orlando Team at NextHome Neighborhood Realty and this is my buddy, Joseph Dionne of Appli Home Loans.
Morning Joe. Hey, good morning. How are you doing today, man?
I'm doing good, enjoying the cool weather down here in Florida.
It is that it is, it's fantastic weather and I'm excited to be with you this morning.
I think we've got some great stuff. So I'm curious what are we going to dive into today today?
I think it's important for us to go through what the current increase in interest rates is meaning to buyers, especially with the low inventory and the continued home price increases that we're seeing and you know this, it's it's a battle out there for home buyers right now.
It really is. So what have you seen in the past, just in the past month alone, what have you seen as far as the increase in rates and how that's affecting are affecting our buyers?
Yeah, this is like, this has been such a huge talking point at my, at my brokerage and my company between my owners and myself and our entire team is really, is this big change in rates and we all knew it was going to come at some point.
We saw it and we've seen the market tested a couple of times and and really just from december to now, you know, so you're talking one month time, we've seen a half percent, 3.625% increase in rates And you're talking in 30 days.
The rates have changed that much. So that's that's nuts.
So that's that's not what does that really mean though to a consumer because they like all right, I've got a higher rate.
Like, what does that mean though? Right. So, so it's got to cut into the purchasing power. It really does.
It really does. So, what I mean right now, if you're in central Florida And you're looking at a house, you you've got to be what?
Around what? 400,000 somewhere around there.
So if we were to say 400,000 Average buyer put in 5% down, you know, and let's just say, so we're going to go with a loan amount of 380,000.
Just to give you some data real quick.
I said, I went and I pulled some information of the at average rates as reported from mortgage news daily for the last one.
Right. And the mortgage news daily is an industry like it's a recognized website for mortgage rates and data and everything rates and everything going on.
All this fun stuff. They give great info.
Then a month ago, they were reporting rates on average, we're about 3.125.
And then today they're reporting the same rates Are right around 3.75. So that's .625 difference.
And this is just this is pulling the data from major, major retail lenders from brokers that are reporting data.
This is everybody that's just kind of like reporting their own data what they're offering and it's out there right?
So you go into that and that difference 400,000 And let's say 400,000 5%, 380,000 loan amount At a 3.125.
That principle and entrance payment It's $1267 and change. Okay so alright excuse me. $1627 and change.
Sorry, sorry, I'm trying to make it really affordable. Yeah.
I was just say you're like I'm about to get over this afternoon.
So that difference from you know now is at 3.75 that same loan amount Would be $1759 and change for a principal and interest payments.
So that's 100 basically you're looking at $130 increase almost. and principal and interest payment.
Where does that kind of equate?
So let's say a buyer was at the top of their debt to income ratio.
Like they couldn't go any higher when we were at a 3.125 that's the max that they can qualify for.
So today they wanted to buy that same have that and maximize their buying power.
They would be down to 370,000 purchase price They lost $30,000 in purchasing power in a month, 30,000 in one month like that that now that's something where you know if you're watching this or you're, you're an agent and you see this video or you're another broker or lender out there like, and you're a client specifically, if you haven't talked to the person that you're pre approved with That in the last month, you better be having another conversation with them to make sure that you're still in good shape.
Yeah. Because they, they, they, they're going through, you know, a lot of the buyers, the way they work is we've got them set up so that they get the new listings every morning.
I'm actually joking with them. Hey, you know, they come out at 6:00, my pants are next to my bed.
You know, you see something called me, we're out the door. It's still that competitive.
There's a lot of pockets right now.
I'll give you a perfect example down in Davenport which used to be 90%, All vacation homes.
Well, it's now probably 50-50 residential vacation. So you've got people competing who are moving here.
You've got foreign buyers who finally can get out of their country after COVID restrictions are lifted and then you've got Americans who want, who want a vacation rental.
Their kids are growing up a little bit, they want to be able to come down to Disney every year.
Maybe get that short term rental.
14 homes we looked at 14 homes all gone one day, one day, All multiple offers 10-20 offers on them. That's you're talking like, like you said, that's that's Davenport's so that's, you know, when you look at the Metro Orlando area, like you're really on the outskirts right there, like Davenport's almost like you're not Tampa Metro, you're not Orlando Metro, you're like somewhere else, somewhere, somewhere out there, look at, look at Oviedo last month.
I had I was fortunate enough to have a listing in Oviedo last month in the sanctuary. Great, great community.
Right? I was the only one there's 900 to 1000 homes in the sanctuary.
I was the only one for sale. 36 homes in Oviedo. That was at 32765 zip for sale last month.
That's crazy. And so, so when we look at that, right?
And we talk all right, so interest rates have gone up. They've taken a big bump up, You know?
And and the reality is it's extremely volatile on the market right now.
But I don't see like you're not gonna see like to like when I say it's volatile, like you're not gonna see tomorrow that it's 3.65.
And then, and the next day it's three again, you're gonna see like, Alright, today it's 3.625, And you know, maybe it improves and it goes to 3.62.
Like so a very very small change down.
But then that bump up might be 3.875, but you know, kind of what I'm saying, and obviously I'm not a major like, I I don't want to sit there and say like, you can write this down and like, this is just my prediction, my estimate, this isn't a guarantee of rates or anything like that.
But I really think that, I think we're going to continue to touch up towards that four on primary, but I don't know if we're gonna pass it.
That's what's interesting, you bring that up because the Fed came out earlier this week And they said they don't think rates are gonna push above four this year.
Yeah. And it's like, that's that's interesting because they're talking about four possible rate increases of a quarter point usually when you get that rate increase, even though mortgages aren't tied to the Fed rate, you know, it pushes them up.
But what did they do yesterday?
They actually announced that they were the met and they were supposed to make their first increase, like in January or they, and they were going to announce kind of what to expect and they said, and we're gonna hold off, we're not gonna do anything.
So March. And the irony of this, right is they took no action.
And what happened, rates pumped up, like, like it's it's so funny the marketplace that we're in right now and kind of what were happening is there's a lot of, I think what you're seeing on and this is why I say we might not cross that 4 barrier a I think it's a psychological barrier that I think that even the feds and the government and everything else, they know that there's a psychological barrier there because we've been below for so long, right?
So I think they're worried about that and they're going to make sure that they take the measures to try to keep it there and if we cross it, I feel like we'll bounce back under it pretty quickly.
But what I think we're also seeing here is that right now we've seen rates jump the way they have because a lot of lenders like myself, like on our side of the table, like the people that are much smarter than me that are like, you know, hedging bets, figuring out these big, you know, national companies, you've got, you know, your United wholesale mortgage, rocket mortgage, Wells, Fargo, you know, all these big companies that are doing mortgages, they've got people and and a team of people that are determining their pricing.
I think what they're kind of doing is they're hedging a little bit right now, they're like, all right, we're gonna protect ourselves a little bit.
Everybody else's protecting themselves right now. We're gonna protect ourselves a little bit, right?
Because they don't know where it's gonna go and at some point, once it starts to stabilize, they're gonna be like, okay, this isn't as bad alright, we didn't go as fast as we want and you may see that improvement.
That's why I think we're gonna see that we'll see ourselves continue to climb.
But I think as we hit that 4, it'll be like, okay, maybe we're not going to go as bad because right now they're saying, hey, let's hedge our bets up front to see what happens.
And then once they've seen what, what's happened to adjust to the market, That's, that's true because I, I bought my home in 2018 And so we, they had actually bumped above 4 and the market slowed down a lot.
So all of a sudden we had, I had opportunities. It was a pretty good market back then too.
But all of a sudden I had an opportunity to negotiate deals that I didn't see before, you know, and I think the Fed knows, hey, one of the big, big power, parts of the economic engine right now that's keeping us afloat, keeping us out of recession, is housing, if housing goes boom, you know, is that the rest of the economy is going to pull back.
I mean, the great thing is, if you look at housing starts, there's actually more new houses being built now since I think it was 2006, something like that.
You know, there's more new housing starts and you know, you read through the Orlando Business Journal, you know, you see where, you know, policies building a new one out towards Mount Dora and M/I homes is building a new one out towards Mount Dora, but everything's were built out.
We're really kind of built out in Orange and Seminole County, especially in Seminole County.
I mean they're, they're finding maybe a five acre lot where they can throw 10 homes on otherwise, you know, you've, we're just spreading out now now now and it's, you know, probably half of my buyers are out of state relocating to, you know, so we're still getting that influx of people moving in here and we're just, and as long as that continues to happen, we're gonna have that shortage.
But you know, it's, it's great to know that hey, you gotta, you can't sit on your decisions.
You know, a lot of buyers get nervous, you know, And the hardest part for me is their level of expectation.
When I explained to him this unfortunately is what a $300,000 house looks like right now in Florida, a lot of them need updating, You know, a lot of them just aren't in top condition.
And you're just, you're trying to explain to him, I would love to find you that new home, but I can't touch a new build for under $400,000 either.
So it gets, you know, it gets, it gets very frustrating and you know, my poor clients in that $200k- $150,000 range boy, you want to talk about finding a needle in a haystack.
Yeah, that's where the home affordability is kind of really has changed and adjusted, right?
And I know this is a big talking point nationally and a lot of politicians are talking about home affordability and that's why they put the recent changes on second homes or on an adjustment for rates that we're going to see go into effect more to where it used to be a second home was essentially the same rate as a primary purchase, but that's gonna go away.
We're not gonna like now because a second home is going to cost more and monthly payment because that rate is going to be much higher than a primary, which is gonna help in some areas.
But I think what, you know, kind of what you pointed out here is, you know, the demand in, in florida is so high and so great right now that florida, you know, I kind of equate back when kind of after the last, you know, that, that the last economic, you know, downfall that we had, so to speak with the hardship from the housing collapse before and then you saw California just explode out of it, like everybody was moving in and the rest of the market was kind of just doing its thing, not really doing much, but then California was like going up, going up, going up, that's what I see in florida right now.
I kind of compare florida right now to kind of that California marketplace from that really that that 2010 to 2014 range where it's just it just kept going and that's because you know, we have less restrictions on Covid, we have the better you know, we have great weather, we have a lot of businesses going here, A lot of companies are allowing remote employment, we have the attractions that are open.
So you've just got such a high influx of people going here that we're gonna see those.
So I think, you know, even though rates are rising and usually when rates rise is that that sometimes stabilizes and gets a little extra inventory slows down how quickly.
But I don't think we're gonna see that the way that maybe other parts of the country will no we're I mean we're we're not seeing it right now, you know it's it's you know it's it's just it's not going up, that's what I thought it's like okay, you know, hopefully december, you know slows down holiday stuff like that inventory will increase a little bit, it actually went down, inventory was down 50% 2021 December to 2020 December wow that's I mean less homes, higher interest rates.
It just makes it a very tough market for home buyers, you know you've got to be on your game and you know you've got, I gotta tell you, you've got to stay in touch with your agent and with your lender, you know, because if you're, if you're sitting at that high DTI where you're right there and all of a sudden it jumps a quarter point and you're under contract and you're not locked in, you may be losing that house.
Yeah, that's you absolutely hit.
It's so crucial to be in constant communication with your lender and your realtor because they're going to help guide you through this and you need to, you need to be making those phone calls as a client to be talking to them.
But your lender and realtor should be reaching out, having these conversations with you as well.
So if you're not experiencing that, you got to call them and figure out what's going on and make sure you're still qualified.
And I think, I think the biggest thing that I took and I know that you know that from our just quick conversation here is this isn't a doom and gloom type of conversation.
This is a, hey, this is where we are and this is the market, right?
It basically means like, hey, you can't wait if you're looking to buy because a, it's gonna cost you more money in your monthly payment.
But it's gonna cost you more money and the opportunities for the homes because values are going up.
So had you bought like, and let's just sit there and say had you bought a year ago, you would have already seen, hey, you would have had a lower interest rate and be, you would have already seen 10, 15, 20% in appreciation.
I got this one for you.
What do you think was the highest percentage increase in in Orange County as far as jump in In home values and home values like like year over year I would say Orange County, I don't know what 15 Windermere zip code 92% We went from, they went $525,000 to over a $1,000,000 ,92%. That's in the Orlando Business Journal This Week.
I about fell over many of the other zip codes in Orange County Where there's a think 10 of them that were over a 30% increase in value.
Think about that if you had bought it last year. Yeah. So one year time potentially wow.
And that's just, and you know what that's doing like the appraisals now like that because those are now comps.
Like those are now comparable sales that that are being compared to help value your property.
So if you're buying right now, those like you didn't benefit from that you bought before.
So what's going to happen more people are continuing to move here like rates went up and it didn't slow down demand so values are going to continue to rise I think and obviously I'm not an expert, I'm not like this isn't you can't take this and you know, but it's like this is just looking at what's happened and where we are, where we're trending.
And if we're if the same thing is happening right now, that happened a year ago and a year before that like likelihood is we're going to see a similar outcome.
Yeah, yep. But that's where the market is today and we do our best, you know, get up and do our best for our clients every day and try and keep them informed.
Well I appreciate your time this morning.
I think I hope that was helpful information, everybody and hopefully we'll see you again next Thursday. Take care.
Great one man. Bye.
