Despite rising interest rates, the scorching housing market in Florida has not cooled, a surprising development that should concern people looking to buy a home, new research suggests.
Traditionally, home prices level off or decline when interest rates rise, as they have in recent weeks. The fact that prices are still rising could indicate that the housing market is nearing its peak and this is a poor time to buy, said Ken H. Johnson, an economist in Florida Atlantic University's College of Business.
"We should not see rapid upticks in prices as mortgage rates rise," Johnson said. "It’s that kind of exuberance that led to past housing downturns.”
The situation raises concerns that a looming downturn in some areas could be worse than expected, according to Johnson and Eli Beracha of the Hollo School of Real Estate at Florida International University.
Johnson and Beracha released research Tuesday showing that homes in 100 metro areas nationwide are overvalued based on historical trends — the level they should be based on past prices.
This, despite interest rates that hit 4.42% last week for a 30-year fixed mortgage, the highest rate in more than three years.
Buyers in the most overvalued market, Boise, Idaho, are paying a premium of 76.34% based on historical trends, the researchers said. In Florida, Lakeland is the most overvalued market at 47.28%, followed by Fort Myers and Tampa, the study shows.
The Jacksonville area fares better, with homes less overvalued than every Florida metro except Miami-Fort Lauderdale. But houses here are still selling at a 36.88% premium, the study shows, and they have been growing more overvalued every month.
The average price in metro Jacksonville reached $334,960 in February, up from $327,374 the month before, the study shows, using data from the Zillow home value index.
Homes in metro Jacksonville last sold below the expected price in October 2018, when the average price was $221,882, the researchers said.
Last week, the Northeast Florida Association of Realtors said the housing market may be cooling but inflation and rising interest rates are making it harder for the typical family to afford a home.
The median sales price for a single-family home in Northeast Florida rose to $351,495 in February, 24.6% higher than the same time last year but only 2.7% higher than January, the association said.
But the "affordability index" — a measure of how easily a family can afford a home at current interest rates, prices and incomes — has declined 27% in a year and 5.2% in a month, meaning it's that much harder to afford a home in Northeast Florida.
Johnson said consumers could be taking big risks if they jump into the U.S. housing market now.
“We are near the peak of the current housing cycle, and you never want to buy near the top of the market,” he said. “Consumers need to pause if their main motivation is to buy because they fear prices will rise even higher.
"Prices are high now, but they always moderate back toward a long-term pricing trend. Perhaps staying where you are now and letting this irrational market settle would be one of the best decisions you could make.”
