Florida Mortgage Rates Surge; Demand, Prices Fall

The last three years have felt been a nightmare for renters who wanted to buy, but couldn’t find houses they could afford. Home prices in the hottest markets - such as the Florida home loan industry - were rising 20 percent a year or more. While some markets might still be hot, home sales and median prices are cooling nationwide.

The state of mortgage rates

Meanwhile, mortgage rates are warming. The benchmark 30-year fixed-rate mortgage jumped 11 basis points to an average of 6.28 percent, according to the Bankrate.com national survey of large lenders. It had not been that high since the last week of 2005, when it also was 6.28 percent.

The mortgages in this week’s survey had an average total of 0.35 discount and origination points. A year ago, the index was 5.67 percent; four weeks ago, it was 6.27 percent.

The 15-year fixed-rate mortgage rose 12 basis points to 5.87 percent. The 5/1 adjustable-rate mortgage rose 14 basis points to 5.89 percent.

Should we expect to see inflation?

This week’s rise in mortgage rates happened at the same time as the release Jan. 26 of the report on durable goods orders in December. Orders were up 1.3 percent - higher than most investors and economists had expected. Bond investors interpreted the report to mean that industrial production might be stronger-than-expected this year, carrying the possibility of rising inflation.

Rising home loan rates are bad news for those shopping for a house, but falling prices might offset some of the damage. The National Association of Realtors reports that, of existing homes that were resold in December, half sold for more than $211,000. That’s down from a $215,000 median home price in November, which was down from a $218,000 median price in October. This should be encouraging news for those seeking to take out a reasonable Florida home loan, as recent prices in areas such as Broward Country have been sky-rocketing.

David Berson, chief economist for Fannie Mae, points out that median prices for existing homes fell in four of the last six months of 2005; also, resales of existing homes fell in each of the final three months of the year.

Even with that three-month slide at the end of the year, 2005 marked a record year for home resales, with 7.07 million units sold. Most economists believe there will be a decline in home sales this year, but few, if any, predict a nationwide price decline.

The immediate future of home sales

It looks like February could be a sour month for home sales, too. The Realtors’ chief economist, David Lereah, says home sales lag a couple of months behind movements in mortgage rates. He expects a modest pickup soon. Areas such as Sarasota are already showing signs of increased new home sales.

However, he seems to think that the days of rapid price appreciation are over for now.

“We’re going through a period of adjustment,” he says. “As home sellers recognize a return to more normal rates of price growth, some that have been holding out for higher prices will be more willing to negotiate terms that are acceptable to buyers but still provide them a solid return on their investment.”

That might not make sellers happy, but could be a boon to buyers. This could be an ideal time to strike a deal on an affordable Florida home loan.