Miami Real Estate Learning Center

THE IMPACT MORTGAGE RATES ON PENDING HOMES SALES

In a promising turn of events for the U.S. housing market, pending home sales experienced a significant surge in December, marking the largest jump since June 2020. There is an 8.3% increase in pending home sales from the previous month, surpassing every expectation, which had anticipated a more modest 2% rise.

This notable jump in December suggests a renewed interest from buyers, driven in part by the decline in mortgage rates. The mortgage rate finally dropped after months and months of increase. The delight from buyers is projecting to a 13% increase in existing-home sales in 2024 compared to the previous year. As mentioned in my previous newsletter, my market predictions are so far right, and more transactions are occurring.

The renewed interest from buyers and the lower mortgage rates are driving the demand up, but the supply remains low. This low inventory is a major problem on the current market. Not many sellers are listing their units, and when they do they usually don't stay a long period of time on the market. Many new constructions are taking place, but they will need years to be built and won't be enough to cover the demand. The only way to have a market balanced is to have an equal number of demand and supply. We are currently far from a balanced market but this jump on pending sales is a big improvement compared to the previous months. It is positive for the future of 2024.

TODAY'S MARKET CHALLENGES FOR BUYERS WHO ARE FINANCING

Buying a home in today's market might be challenging, with high prices, limited inventory, and mortgage rates more than double what they were two years ago. Many homeowners with mortgage rates below 4 percent chose to stay put, resulting in a significant shortage of available homes for sale. Despite the tough conditions, I think it is better to dive in now and buy now rather than wait. Here's why:

Mortgage rates: If you are expecting the mortgage rate to significantly drop, it could be a mistake because the current rate at 6.6% is already lower than it used to be, and we can't predict the future. It can stay at this rate, go lower, go higher than this number. If you find a property that you like and are thinking of financing, waiting may not be the good strategy because someone else can step up and buy your property. And worse case scenario you'll refinance if you expect interest rates to drop.

Individual circumstances: When making decisions about buying a home, it's important to think about factors that are specific to your situation, like whether your lease is ending soon, what kind of lifestyle you prefer, and where you are in life. Concentrating on what you need and want right now, rather than trying to guess things that are totally out of your control.

WHY NOT RENTING INSTEAD OF BUYING ?

The previous mortgage rates increase has lead into a decrease of home for sale.

The inventory is 36% lower than before the pre-pandemic, a lowest new record for the past 10 years. Reluctance among homeowners to move has also impacted job mobility, as individuals are hesitant to relocate. One of the solutions to this problem, could be renting instead of buying.

But for cultural and legal reasons Americans are not in favor of renting. On top of that, the U.S. government offers tax deductions and additional advantages that promote homeownership instead of renting. The stability associated with homeownership, fixed-rate mortgages, and various protections for homeowners contribute to the reluctance to transition from owning to renting.

Another reason why Americans prefer to buy is that in other countries, such as many in Europe, there are stronger renter protections. In these countries renting is seen as a long-term option, with landlords facing limitations on terminating rental contracts or raising rents arbitrarily. In Florida, the landlord doesn't have any limit on how much they can increase a rent. Plus contracts are usually for 1 year lease so tenants do not feel as stable and anchored with a long time vision.