Interest rates are a major driving force behind real estate market activity. High rates not only create affordability challenges for buyers but can also limit inventory by discouraging existing homeowners from listing. While many consider high rates to be a major headwind, buyers shouldn’t automatically be discouraged by the current state of the market.

Investing in Florida real estate can pay off big in the long run, even if you’re forced to finance with a high interest rate. Real estate transactions involve a myriad of moving pieces, and your real estate agent can help you consider strategies for navigating the current landscape. Understanding how interest rates impact your buying capacity now and in the near future is key to making smart investment decisions, but shouldn’t be your only consideration.

How Current Interest Rates Are Impacting The Market

During the pandemic, mortgage rates fell to the lowest point in 20 years which spurred significant buyer demand. The average 30-year interest rate in 2020 was 3.15%. However, rates have been steadily climbing ever since and nearly doubled by mid-2022 at 7.7%. While today’s rates have dropped modestly from their 5-year highs, they still remain elevated.

However, we are beginning to see some signs of fluctuation. Rates dropped by nearly 100 basis points in Q3 2024, which was around the same time the Fed started cutting rates. While the Fed doesn’t directly set mortgage rates, they tend to follow a trend similar to the federal fund rate.

While the Q3 drop was encouraging, average rates started rising again in October and eventually peaked at 6.84% on November 21. This most recent spike is likely driven by climbing treasury yields, which are reacting to inflationary pressures and policy uncertainty. It’s no surprise falling buyer demand coincided with this early Q4 spike in rates.

How High Mortgage Rates Impact Your Buying Capacity

High interest rates can be a barrier for many consumers who are looking to make a home purchase. When financing a home, elevated interest rates will increase your monthly payment. For example, on a $450,000 home, you can expect an additional $25-$30 for every 10 basis points on your interest rate, which can add up very quickly. With home prices rising, it’s easy to see how high rates could keep many buyers out of the market.

If you’re a current homeowner planning to move, high interest rates could impact your buying capacity in a couple of ways. First, if you locked in a low interest rate during the pandemic era, you could see a large rate increase when financing your new home. Second, as high interest rates put buyers under pressure, it could impact the ROI on your existing home sale. Today’s affordability challenges mean fewer buyers are in the market, so those who are will have greater negotiating leverage.

However, if you’re eager to buy a home now, purchasing in this rate environment could still make sense. While interest rates significantly influence buying power, they’re not the only factor.

Focus On What You Can Control

While you can’t control interest rates, you don’t need to feel discouraged. There are several levers you can control to make your next home purchase more affordable.

• Your Real Estate Agent – The right real estate agent could save you thousands at closing. Good real estate agents know how to negotiate. They can also help you avoid costly pitfalls and advise you on how you can save money or maximize the return on your existing home. Taking time to interview and select the right real estate agent is an important step that you shouldn’t take lightly.
• Negotiations – In a balanced real estate market both buyers and sellers have room to negotiate before closing. If interest rates are pushing you beyond the edge of affordability, try to negotiate on the home price. You could concede inspection contingencies, closing timelines, or repair costs in exchange for a lower monthly payment.
• The Pricing Of Your Existing Home – Focusing on generating the highest possible return on your existing home can help you offset the cost of your next one. Staging and cleaning your home, making upgrades, and marketing your listing could ultimately result in more money back in your pocket, which can help you contend with higher interest rates.
• The Timing Of The Sale
  Timing is an important factor for both buyers and sellers as there is a seasonality component to the real estate market. While many believe listing/buying in the spring and summer will help you land the best deals, there is a lot to like about selling in the wintertime — especially in Central Florida. Both buyers and sellers are often more motivated to sell in colder weather months.

Why Now Is A Good Time To Buy In Central Florida

It’s easy to get carried away by the doom and gloom of real estate headlines, but it’s important to remember that the media tends to focus on trends impacting Southern Florida. The Central Florida market can be more consistent when it comes to home prices, insurance costs, and inventory. Additionally, interest rates will ebb and flow, and refinancing down the road is always an option.

The sooner you invest in your Central Florida dream home, the sooner you will be on your way to building equity and wealth.

While elevated interest rates will continue to impact buying capacity, they don’t need to keep you on the sidelines this winter. If you’re ready to buy your next home, choosing the right REALTOR® is the best next step.

If high interest rates and affordability concerns are holding you back from purchasing your next Volusia County home, contact the team at Bee Realty to discuss your situation today. We’re one of the best and most experienced agencies in the area. We can help you maximize the return on your current home sale and guide you on the best way to navigate the current market.