Interest rates and their effect on the Manatee and Sarasota housing market

10 year Treasury yield

It’s hard to believe that almost 1 year ago I was talking about the rise in interest rates and their effect on the real estate market here in Manatee and Sarasota counties.  Interest rates were running about 4.5-5%, and were the topic of all the news blogs, TV news stations included.  At that time I was still confident that the real estate market in our area of Bradenton, Lakewood Ranch, Sarasota, and the Islands would remain steady, for 2 reasons. First, about 50% of transactions in our area are cash.  Second, money was still relatively inexpensive to borrow.

 

10 year t-bond 1 month
10 year T-Bond 1 month

Fast forward one year and who would have imagined that rates today are about 3.5-3.75%.  Another interesting fact is that those who can afford to purchase with cash are opting for a mortgage.  Why?  Their financial advisors are telling them to keep the cash and use OPM (other people’s money).  In most cases, their portfolios are making more money than the current mortgage rates and providing positive cash flow, if only in terms of what they would be losing in return from investments had they taken out the cash.

Mortgage Rates- Freddie Mac
Mortgage Rates- Freddie Mac

  writes: Contrary to popular belief, mortgage rates are not based on the 10-year Treasury note. They’re based on the bond market, meaning mortgage bonds or mortgage-backed securities. When shopping for a new home loan, many people jump online to see how the 10-year Treasury note is doing, but in reality, mortgage-backed securities (MBS) drive the fluctuations in mortgage rates.

In fact, it is not unusual to see them move in completely different directions…

Some bond market reporters mistakenly tie mortgage rates to the performance of the 10-year Treasury bond. Many of these financial reporters possess a broad knowledge of bond markets, but they are not mortgage experts and do not fully comprehend how mortgage interest rates are determined.

In summary, the state of Florida is still experiencing large growth, mainly coming from high tax states.  Builders are very busy here in Lakewood Ranch and Sarasota, trying to keep up with demand.  As our “season” approaches for 2019-2020 we are expecting an even balance continuation of growth.  A 3-4% increase in year over year sales of existing homes and new builds would keep prices stable.  Low-interest rates will help the market continue in its upward trend.