Rising Interest Rates Taking Their Toll

After a two-day conference this week, the Federal Reserve bumped up the nation’s interest rates for the 17th consecutive time. As a result, the average costs of Florida home loans rose for the third consecutive week.

The Federal Open Market Committee said it believes U.S. economic growth is slowing from earlier this year, reflecting a cooling of the housing market and the effects of higher interest rates and energy prices. However, high gas prices and other important commodities have the potential to sustain inflation pressures.

The rising rates have pushed up mortgage payments, especially for those who financed their homes with adjustable-rate mortgages. Increasing payments and higher borrowing costs are putting downward pressure on the Florida housing market, which has boomed for the past five years.

There is no doubt the Fed’s continued battle against inflation will impact the housing market, predicts Jonathan Hamilton, the Economics Department Chair at the University of Florida.

“It’s just going to be a little more of a push-up in mortgage rates,” Hamilton said. “Everybody has been predicting the housing boom to end, and this is just another nail in the coffin, I think. Housing already seems to be slowing down in some places.”

It all depends where you look. The Naples real estate market, one of the state’s priciest, and considered up to 102 percent overvalued according to some estimates, is demonstrating signs of significant cooling. But farther north, areas such as Brevard County and greater Gainesville have held steady or grown in recent months.

How the market will play out if mortgage rates top 7 percent — or 8 percent — in the next year or so remains to be seen. For now, analysts are calling the recent market trends a return to normalcy. Here is a look at the average Florida home loan costs, by month, over the past three years, during which time the housing market boomed… and is only recently cooling off.