Survey finds concern about impact of interest rates on Florida real estate markets
GAINESVILLE, Fla. — Rising interest rates could dampen the recovery of Floridaâ€™s real estate market, a new University of Florida survey suggests.
A look at the second quarter of this year found the general investment outlook for all sectors of the market declined for the first time in two years, according to a survey of 145 real estate analysts, investors, brokers and others. Optimism from previous quarters has waned and will continue to weaken as rates continue to go up, the report states.
Interest rates on loans for all property types are based on the 10-year treasury interest rates, which jumped 66 basis points between the start and end of the second quarter. As of last week, it was up 130 basis points, said Timothy Becker, director of the Bergstrom Center for Real Estate Studies, part of the Warrington College of Business Administration.
â€śIn the end it makes deals harder to do, as you increase the interest rate, you have to get more rental growth and higher occupancy in order to make the numbers work,â€ť he said.
â€śThere are a lot of deals being done right now, thatâ€™s why the market has really picked up; things are recovering and people can charge more rent,â€ť he said. â€śBut as those interest rates start to tick up and if they continue at this pace, itâ€™s going to get to the point where itâ€™s difficult to make deals work at the current rental rates.â€ť
The report covers apartments and commercial rental property, single-family houses and condo development, and developable land. Here are the outlooks by sector in the second quarter:
- New single-family and condo development declined slightly but remained positive.
- Multi-family properties continue to be positive, and rents and occupancy will increase but at a slower rate.
- Office markets improved for Class B, or older properties, but declined for Class A, newer properties.
- Retail properties continue to be positive with growth in rents and occupancy driving optimism, but increasing interest rates and declining consumer incomes will have impact.
- Land investment increased across all property types with most reaching survey highs.
â€śThe apartment market has been probably the best sector for the past couple years. It is reflective of the changing dynamics of peoplesâ€™ tastes and so the younger generation wants to rent longer,â€ť he said. â€śBut itâ€™s also reflective of what happened in the housing market — people got foreclosed on their houses, they had to go somewhere so they moved into apartments.â€ť
The housing market is starting to come back particularly for home builders, but itâ€™s going to be interesting to see the impact of interest rates over the next few quarters, Becker said.
â€śIf you need that low interest rate in order to buy the house and make the payment, then itâ€™s going to push people into a lower price home or they may decide not to do it and wait until they can put up a bigger down payment,â€ť he said.
Interest rates have been artificially low for a long time because the Federal Reserve has been pumping money into the marketplace, but that is expected to end because of the improved overall economy and the fear of inflation.
A political stalemate at the federal level over raising the debt ceiling and funding the government also could affect investments.
â€śMarkets hate uncertainty, they just donâ€™t like it when they canâ€™t plan for the future,â€ť he said. â€śAny time we see nonsense from Congress, it just shakes peoplesâ€™ confidence. They rein back investment and kind of wait it through.â€ť
On the positive side, Floridaâ€™s population is still growing and tourism keeps increasing.
â€śDevelopers certainly like the fact that weâ€™re growing, I think that overall if you look at the graphs itâ€™s a positive report,â€ť Becker said. â€śWeâ€™re still in a good position, things are still getting better. There is just a bit of uncertainty that the market needs to navigate as it moves forward.â€ť
The Survey of Emerging Market Conditions for the second quarter can be found here: