Will the Fed’s war on inflation tank Tampa Bay’s housing market? Experts weigh in

Home sales dropped 21.6% year over year.
Home sales decreased 21.6% year over year in the Tampa Bay area.
Home sales decreased 21.6% year over year in the Tampa Bay area. [ LUIS SANTANA | Times ]
Published Dec. 15, 2022|Updated Dec. 15, 2022

As the Federal Reserve tries to ward off a recession, the fate of Tampa Bay’s once red-hot housing market hangs in the balance.

On Wednesday, the Fed raised interest rates to a range of 4.25% to 4.5%, the highest level since 2007. In a statement the central bank said “ongoing increases … will be appropriate.”

Though the Fed cannot directly manipulate housing prices or mortgage rates, “they want to put a stop to rising home prices because it adds to inflation,” said Lei Wedge, a professor of finance at the University of South Florida’s Muma College of Business.

Setting higher interest rates can discourage people from buying homes and cause prices to drop.

Still, housing is less affordable than it was in 2019 and will likely remain less affordable through next year, said Taylor Marr, deputy chief economist for the real estate brokerage, Redfin.

“Mortgage rates and home prices are still elevated from where they were before and sellers still have a lot of control,” he said.

The average 30-year fixed mortgage rate stands at about 6.42%, according to the Mortgage Bankers Association. That’s down from October, when rates crossed 7% for the first time in 20 years, but it’s still nearly double what it was this time last year.

Sellers have yet to drop prices accordingly. The median sale price for Tampa, St. Petersburg and Clearwater stayed flat month over month and increased 14.9% year over year, according to October data from Greater Tampa Realtors.

This has caused some buyers to drop out of the market. Home sales decreased 21.6% year over year in the Tampa Bay area.

Manuela Hendrickson, president of the Pinellas Realtor Organization, said consumers need to adjust their expectations during this transition back to a normal market.

“We had an incredibly unusual situation spurred by a worldwide pandemic and in order for interest rates to come back to those historic lows we would have to have something just as bad happen,” she said.

She noted that first time homebuyers who make less than $85,000 a year will have a difficult time breaking into the market right now.

Though conditions may get worse before they get better, Wedge said she doesn’t expect to see a major housing crash like in 2008. At that time, lax mortgage lending standards led to widespread foreclosures when people couldn’t afford to pay back their loans.

“For the past few years the interest rate has been very low so people’s payments have been very low,” said Wedge. “This makes them less likely to default.”

Tampa Bay may also be better equipped to ride out the storm compared to other markets across the country. Tampa was the fifth most popular metro area for homebuyers looking to relocate, according to a November analysis from Redfin.

“This is a hot market and people coming from out of state don’t have a problem with our prices,” Hendrickson said. “The values of our homes are still going up.”