Florida Home Loan Rates Hit 44-Month High

With spring buying season ready to commence, U.S. mortgage rates reached their highest point since July 2002 last week. The rise in rates — to an average of 6.42 percent for 30-year fixed-rate loans, according to the AP and MSN Money — may limit the borrowing power of first-time buyers and, in turn, force some sellers to reduce prices.

“As rates go up it definitely affects homebuyer affordability. It will affect more of the first-time home buyer market and will slow down anyone trying to trade up,” said Robert Moulton, a Manhasset, N.Y.-based broker who is head of Americana Mortgage Group.

The Mortgage Bankers Association (MBAA) compiled the 6.42 percentage rate of the most common mortgage in its weekly survey of 18 nationwide lenders. The week of July 5, 2002 was the last time the 30-year mortgage rate was this high (it reached 6.46 percent). Meanwhile, 15-year mortgage rates rose to 6.06 percent last week, a level not seen since June 7, 2002.

Rates for adjustable rate mortgages have also risen sharply in recent months, a factor that could also hurt first-time buyers. An national average of 5.64 percent last week was slightly lower than the week of March 3, but still near a plateau not reached sicnce December 2001. The rise in borrowing costs comes amid a series of Federal Reserve interest rate hikes and could not come at a worse time for the housing industry.

Inventory levels are extremely high in many areas, and the spring season is typically the busiest time of the year for the home loan market as many families look to buy, then occupy a home before the next school year begins. Rates for mortgages have climbed steadily along with the overall strength of the U.S. economy. A strong February employment report and signs of resilience in manufacturing and service industries have boosted U.S. growth.

The higher borrowing costs for buyers have already lessened demand, with requests for home loan applications down 20 percent from last year at this time. The National Association of Realtors expects sales of previously-owned homes to fall 5.7 percent this year from 2005. Still, despite the surge in 30-year fixed-rate Florida home loans, they likely won’t go much beyond 6.75 percent this year, according to economists at the MBAA.

Economists believe the underlying strength in the U.S. economy will ensure reasonably strong demand for housing in the spring, even if the borrowing ability of buyers is being stretched.

“It will be a relatively orderly soft landing,” economist Joe Lavorgna, of Deutsche Bank Securities, said. “At some point, trees cannot grow to the sky and neither can home sales.”

IN SUMMATION: All hope is not lost. In Florida, a rise in home loan rates may limit your borrowing power, but it also could take away sellers’ leverage and lead to price reductions. So some of the damage done by pricey Florida home loans will be undone by lower median prices. Maybe the time is right for those looking to enter the Florida housing market after all.

A TIP TO CONSIDER: As you look to defray the cost of rising home loan rates, a smaller home could be a lot less expensive. Chances are, you can do more with less.