• Florida’s housing market faces challenges as mortgage rates approach 8%, impacting home prices and affordability.
• South Florida is already experiencing intense competition due to high demand, pricing out lower-income families.
• Experts warn that an 8% interest rate could lead to even fewer homes on the market, driving up prices and creating serious concerns about housing affordability in the region.

With mortgage rates threatening to move above 8 percent and home prices in Florida already near historic highs, the absurdly high and still-rising cost of living in South Florida could become a significant drag on the local economy. Experts say a higher shift to interest rates above that level will have a significant impact, both psychologically and economically. And in South Florida, where white-hot competition for housing is forcing lower-income families to move out, that doesn’t bode well for the region’s economic growth in the long run.

High-interest rates are taking a toll on the U.S. housing market in general, but in Florida, the problem is even more acute, with a surging population driving demand for housing costs. In the rest of the nation, even with the strong demand, home builders and housing market watchers have noted a dip in home buyer traffic. But in areas like the Sunshine State, population growth is propping up demand for housing. Even so, an 8 percent 30-year mortgage interest rate would likely have serious implications for Florida’s housing market, experts warn.

Any time there’s an interest rate hike, there’s a bit of a shakeout period while the real estate market adjusts. And each time interest rates reach a new level, it acts as a psychological barrier, too.  In the weeks immediately after a new rate hike, economists warn potential sellers will think twice before putting their home on the market. Unless they can pay cash to replace the home they’re selling, they’ll be forced to pay for a replacement home at the new, higher mortgage interest rate.

Fewer homes on the market means buyers have to scramble to compete for whatever homes are available. That, in turn, results in a spike in the prices buyers are willing to pay, driving home values even higher, and in many cases, out-of-reach. In areas like Miami, lower-income earners are getting priced out of the market.

Solutions to the problem are few and far between. Home builders are trying to make up the difference, with new construction comprising an unusually high number of homes on the market, according to a report from earlier this year. But new construction can only make up so much of the gap. With demand tempered by high mortgage rates, and construction costs – both labor and materials – elevated due to inflation, builders have to be careful not to overextend themselves with too much capital tied up in unsold homes on the market.

Despite the robust economic growth in South Florida, there is growing concern that a prolonged housing affordability crunch will create a labor shortage and cause a significant slowdown across the region. The three-county region of Miami-Dade, Broward, and Palm Beach has seen a lower-income population decline, contrasting sharply with other growing counties in Florida. In Miami-Dade County, housing affordability remains a central concern, with less than 17% of homes within reach for typical families.

The next meeting of the Federal Open Market Committee, known as the “Fed,” will determine any potential interest rate change. The meeting is just over a month away, scheduled for September 19-20, 2023. In July, the Fed hiked interest rates by a quarter point.