It looks like the cost of buying a home in Orlando will continue to increase over this next year. Interested buyers will contend with several factors such as higher interest rates and tighter restrictions for mortgage loans which have impacted average sales price in the metro area.
The Central Florida housing market experienced a record setting year in 2013 with home prices increasing by more than 20 percent. Median sales price for homes in Orange County rose from $132,500 at the end of 2012 to $160,150– strong evidence that this market has finally recovered.
Higher Monthly Mortgage Payments
First-time homebuyers who threw down 10 percent and purchased their home at 85 percent of the median selling price now have an estimated $626 monthly mortgage payment. The Orlando Regional Realtors Association says that first-time buyers were paying $453 a month. That’s an average of $2,000 more in expenses for Orlando homeowners.
The interest rates for a 30-year, fixed-rate mortgage have fluctuated in the last couple weeks as well. These rates were 3.46 percent in December 2012 and are now at 4.57 percent. Economists predict that they’ll reach 5 percent by the end of 2014.
First-Time Homebuyers are Weathering the Full Effects
These aren’t the only expenses that homeowners should be keeping an eye on either. Increased property values means that property taxes have gone up too. Established owners are protected from steep hikes like this, but first-time buyers must withstand the full effects.
Other increasing costs from 2013 include:
- Homeowner insurance fees (remember the proposed hikes in flood insurance?)
- Mortgage insurance fees
“So everything is working against you as the little guy who is trying to get into a house,” says Barbara Hampden, a real estate agent in Winter Park. “I do not necessarily think that this is a bad thing that buyers are having a hard time. If they are having a hard time, they probably shouldn’t be getting into a loan in the first place.”
The Federal Housing Administration has beefed up its mortgage-insurance premiums three times in the last three years. Homeowners essentially pay so that lenders can be fully compensated in case they default on their mortgage.
Declining Rate of Homeownership in Orlando
The rate of homeownership is not what it used to be in the Orlando area. Issues with foreclosures and several other factors have kept the homeownership rate below 70 percent for the last few years (According to the U.S. Census, it was 63 percent as of 2013).
Several mortgage-qualification restrictions that just took effect have made homeownership even less reasonable for even more prospective buyers in Central Florida. Buyers have a slim chance of qualifying for a standard loan if their combined debt and proposed mortgage payments add up to at least 43 percent of their gross monthly income. It used to be that this debt-to-income ratio could be as high as 50 percent.
This will force more prospective buyers to seek loans that are not backed by the government and these will come at a steeper price (i.e. higher interest rates). These are what the real estate professionals refer to as “private label” mortgages.
These trends point to a much more restrictive home loan market for 2014. It’s understandable that we don’t want to repeat the same mistakes that created the last mortgage crisis, but could this hurt the housing market in a different way?