The Fed has recently been making big moves to slow down the economy. The high inflation may be a good thing for certain players in the economy, but it’s not sustainable in the long run. Since the Fed is tasked with managing inflation, they have recently increased interest rates. The recent interest rate hikes are the biggest in decades and Miami real estate and debt financier Alex Kleyner a young 20 something year old is experiencing the first shock of his professional life and is providing advice on how this will affect the Miami real estate market.
After seeing the resilience of real estate in Miami which speaks to the level of inflation in the US economy. High interest rates help to contain inflation by mopping up all the excess cash circulating in the market. High interest rates make saving money attractive to consumers. Treasury bills and bonds also become more attractive to investors as they provide higher yields. It is important to note that interest rate fluctuations also affect the real estate market.
How Interest Rate Fluctuations Affect the Miami, FL, Real Estate Market
i) Stable Demand
In many cities and towns in the United States, a rise in interest rates can easily depress the market because consumers will postpone their decision to buy a house due to the high cost of mortgages. As a result, the demand for new homes and commercial properties will reduce. In Miami, FL, however, fluctuating interest rates do not have a significant impact on the market according to Alex Kleyner who is seeing those who ABK Capital lent to sell their homes for cash after the construction was completed.
The main reason is that many foreign investors keep the demand for Miami real estate high. Miami has a great climate and is close to Central and South America. This makes it one of the best places to own property. That is why demand is high and is expected to remain high regardless of interest rate fluctuations.
ii) Rising Property Prices
Interest rates are usually a key factor of consideration when calculating property prices, so an increase in interest rates will lead to an increase in property prices. The increase in prices is due to high financing costs and high labor costs. In addition to that, prices in Miami are also rising due to the high demand for Miami real estate.
iii) New Real Estate Developments
While a rise in interest rates may force developers to slow down their activities in other parts of the country due to the high cost of credit, real estate developments in Miami are not affected. This is because most of the real estate deals in Miami are cash-based. Florida Realtors estimate that around 50% of townhouses/condos are purchased with cash. This means that interest rates are not a factor. That is why developers are still bullish even with the high-interest rates. After all, they can sell their units and start new developments without worrying about the cost of credit.
Florida Defies the Norm
As noted earlier, an increase in interest rates cannot adversely affect the Miami real estate market. Similarly, interest rate cuts will not have a significant impact on Miami real estate. That’s why many local and global investors prefer to invest in Miami. Recent market history shows that Miami always defies the norm. Since the Fed announced the interest rate hike, some locations in Miami, and Florida in general, have been reporting significant growth in property prices. In many parts of the country, the interest rate hike has depressed the real estate market but Miami and South Florida have such strong demand that they are stable.
