Orlando’s hot domestic market cools down a bit as interest rates rise

After more than a year of bidding wars, cash bids and steep price increases, the United States and Orlando housing markets are stabilizing somewhat, if only for those who are wealthy enough to continue shopping.

“For people who can afford to stay in the market right now, there’s less competition, there’s more choice of homes, and those homes stay on the market longer,” said Nicole Bachaud, an economist at the Zillow real estate website.

In Orlando, home prices have risen steadily since November 2020, hitting a median of $387,000 in June, and the inventory of homes for sale has hovered at or near record lows for the past 18 months. Additionally, cash purchases from investors and people from the Northeast made teleshopping a frantic battle to grab whatever was available.

“It was a feeding frenzy for a while,” said Ingrid Dodd, a Sanford-based real estate agent with Investor’s Real Estate.

But mortgage interest rates are up 105% since July of last year, according to the Orlando Regional Realtor Association, and home prices are up 55% from before the pandemic.

A mortgage on a $320,000 home with a 20% decline in July 2021, the median home price at the time, would have made a monthly payment of around $1,056. That same mortgage today, at an interest rate of 5.79%, would be $1,500.

“Rising interest rates have certainly put some of my clients on hold,” Dodd said, adding that many have opted to lease for another year.

As buyers argued, sellers began to lower their prices. Orlando saw 14.7% of listings drop in price in June, compared to 10.6% in May, according to Zillow.

More shoppers still looking were able to watch at their leisure, according to Dodd.

“If there’s a house they don’t particularly like but it was the only option before, they’ll skip it and move on,” she said.

The hardest hit group are first-time home buyers, who typically need modified loans with lower down payments.

“We’re definitely going to see this gap between existing owners and those who want to be but are moving further and further away from that reality,” Bachaud said. “If you don’t have the equity from a previous home sale, it’s much harder to afford a home right now.”

Rents are also rising sharply, with Orlando seeing the nation’s fastest rent growth in the last quarter from a year earlier. According to Bachaud, as more and more people are forced to return to renting, the pressure on rents creates a vicious cycle.

“If you’re trying to save for a down payment, that’s a lot less money than you have,” she says. “It will be all the more difficult for those who are excluded from the market at the moment to make that leap later.”

Bachaud says that while other markets across the country will likely see price declines over the next year, strong Florida demand will likely keep prices up in the near term, even if the rate of appreciation slows down.

“The drop from 30% annual appreciation to 3% is going to seem steep,” she said.

The Tampa Bay Times published an article on Thursday saying its market was cooling, with new mortgage applications falling for three straight weeks and inventories rising.

In Orlando, Dodd says the market hasn’t returned to pre-pandemic normal. Homes selling for $350,000 or less still attract multiple offers quickly, with much of the interest in communities on the outskirts of metro Orlando.

“These outlying areas still give you a bit more bang for your buck,” she said.

Even investors seem more hesitant, Dodd said. She says that on her most recent listings, she hasn’t had any serious cash offers, a regular practice of investors over the past year.

Salespeople, who have spent nearly two years in the driver’s seat, may have to settle for less, Dodd says.

“There’s going to have to be a change of mind,” she said. “Even if their neighbor got $400,000, maybe he won’t.”

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