The Ponte Vedra Beach housing market is a desirable location for permanent residents, part-time vacationers buying second homes and investors looking for rental properties.
The good news is that the available housing inventory is increasing for buyers. Current active listings in ZIP Code 32082 is 68 units, up from 10 in January 2022, according to the North-East Florida Real Estate Association. These include single-family detached homes, town homes and condos.
Mortgage interest rates are still much lower than historical highs, and lenders offer different types of mortgages to fit most qualifying buyer needs.
Today, we will talk about one of the factors affecting the mortgage market, interest rates and a nice mortgage option to discuss with your local lender to offset rising fixed mortgage interest rates.
Interest rate update
The two-year trend of lower interest rates began shifting upward in Q3 2021 and accelerated this year. In 2022, inflation concerns materialized into a long-awaited Federal Reserve monetary policy directly affecting mortgage interest rates.
The Federal Reserve does not control residential mortgage interest rates, but it does impact them with monetary policy it sets for banks and lending institutions. Housing is an important economic sector the Fed is concerned about monitoring. Fed monetary policy related to interest rates has a direct effect on housing. Currently, the effect is increasing interest rates.
One weapon in the Fed’s arsenal affecting housing is the Federal Funds Rate, a target rate set by the Federal Open Market Committee (FOMC). The committee meets eight times a year. The most recent meeting was Tuesday, July 26 (source: Investopedia.com, “How The Federal Reserve Affects Mortgage Rates,” by Poonkulali Thangavelu).
The meeting was anxiously anticipated as most economists were expecting another 0.75% increase to the funds rate based on Federal Reserve Chairman Jerome Powell’s inflation concerns. The funds rate is what banks charge one another, and it impacts what banks charge mortgage customers. When the Fed makes it more expensive for banks to borrow money, the banks pass on the expense to their mortgage customers by raising interest rates.
Adjustable-rate mortgage update
As fixed mortgage interest rates increase, hybrid adjustable-rate mortgages (ARM) become popular. A hybrid ARM is fixed for a certain timeframe, normally five, seven or 10 years, and adjusts afterwards. The adjustment happens once or multiple times annually based on a pre-determined index rate.
ARM rates are lower than fixed rates because lenders offer a lower upfront interest rate compared to fixed-rate mortgages. This is possible because the lenders realize the mortgage payment adjusts to the market rate after the upfront fixed timeframe ends. Lenders do not take a 15- or 30-year risk of having a lower-than-market return on their money with the ARM. A common ARM misconception is when the adjustments happen the interest rate increases. On the contrary. The rate and mortgage payment will decrease if your five-, seven- or 10-year ARM begins adjusting in a lower interest rate environment compared to when you originally took the mortgage.
In conclusion, the mortgage market is going through a transition from low to higher rates. However, as noted in the attached chart this increase is still much lower than historical rate increases over the past 40 years (source: Freddie Mac), and one the United States economy has weathered before, and able to navigate now. Especially for Ponte Vedra Beach, a desirable destination for different types of home buyers.
— Article written by David Johnson, Ameris Bank, Mortgage Banker, NMLS #1446956
Editor’s note: This article was written prior to the FOMC meeting on July 26 and, therefore, the results of that meeting could not be reported here.
