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Mortgage rates are going up. What does this mean for Tampa Bay homebuyers?

Demand may slow slightly, but not enough for home prices to drop down to pre-pandemic levels.
The average rate for a 30-year fixed mortgage in the U.S. has reached 5.65%, the highest since the 2008 financial crisis, according to the most recent data from the Mortgage Bankers Association. This may cause the real estate market in Tampa to cool down slightly.
The average rate for a 30-year fixed mortgage in the U.S. has reached 5.65%, the highest since the 2008 financial crisis, according to the most recent data from the Mortgage Bankers Association. This may cause the real estate market in Tampa to cool down slightly.
Published Jun. 16|Updated Jun. 16

Tampa Bay’s white-hot real estate market could finally start to cool as mortgage rates continue to go up.

The average rate for a 30-year fixed mortgage in the U.S. has reached 5.65%, the highest since the 2008 financial crisis, according to the most recent data from the Mortgage Bankers Association. The Federal Reserve’s decision to hike interest rates 0.75 percentage points on Wednesday could signal further increases for mortgage rates.

Lei Wedge, an associate professor at University of South Florida’s Muma College of Business, said The Fed is trying to crack down on inflation by decreasing buying power. This means prospective homebuyers may have to compromise on things like size and location to stay within their budget.

“Your income is the same and the amount of money you can spend on the home is the same, but because of the higher interest rate, the amount of home you can afford is going to be reduced,” Wedge said.

Still, Jay Quigley, a real estate agent with Florida Executive Realty and president elect of Greater Tampa Realtors said he doesn’t think the rate hikes will be enough to scare off most buyers.

“I do think people will keep trying,” he said. “Because what are their options right now, renting? People are struggling to find a reasonably priced rental unit.”

Quigley noted that though new buyers have become accustomed to the historically-low interest rates triggered by the pandemic, if you look at the big picture, “It’s still low even at 6%. But people’s perception is that it’s high, so it’s kind of a perception adjustment.”

As financing a home becomes more expensive, Jane Floyd, a mortgage lender with NFM Lending in Tampa said sellers will also have to adjust their expectations.

“Before, people wanted a house so bad that they were paying massive amounts over,” she said. “Now the market is telling sellers, OK, it’s been on the market for 10 days and you don’t have 20 offers. The price is too high, let’s bring it down.”

Though slowing demand will make it impossible for the Tampa Bay market to sustain the rapid growth it’s experienced over the past year, both Wedge and Floyd agreed that it won’t be enough to bring home prices back down to where they were pre-pandemic.

That’s because for years, real estate in Tampa Bay has been undervalued, Floyd said, adding that prices are still relatively low compared to other parts of the country.

“At the end of the day, people want to live here,” she said.

There is one group that is likely to start pulling out of the market as rates go up: investors.

“They expect a cash flow,” said Wedge. “They expect the rent to totally cover their mortgage or. So with a rising interest rate, then the rent is not going to be enough.”

This may free up some inventory for those looking to settle down in Tampa Bay, but buyers will still have to compete against hedge funds and other institutional investors who can afford to pay with cash, Wedge said.

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