For the first time in more than four years, the Federal Reserve cut its key interest rate Wednesday.
The reduction in borrowing costs comes at a mixed time for South Florida real estate. Mortgage rates have been slowly moving down since April and the action this week by the Fed likely will continue to bring them down.
The Fed cut its benchmark interest rate by an unusually large half-point, a dramatic shift after more than two years of that helped tame inflation but also made borrowing painfully expensive for American consumers. The central bank’s action lowered its key rate to roughly 4.8%, down from a two-decade high of 5.3%. It signals the Fed's two-plus year fight against inflation is over.
The move is good news for buyers who can qualify for a mortgage. Buyers can borrow more money as rates fall. But it also will help support home prices, especially single family homes, which have continued to increase in price. Lower borrowing costs may encourage more buyers into the market competing for homes, pushing prices up.
Lower borrowing costs also may help some commercial property owners who need to refinance their mortgages. Still, an office or apartment building owner in South Florida is looking at a substantially higher interest rate today compared to several years ago.
And the lower mortgage rates may not help the troubled Florida condo market where average prices have been falling as more units hit the market looking for buyers amid worries about the impact of reforms put in place after the Surfside collapse.
"It's great for real estate in the short run," said Florida Atlantic University Finance Prof. Rebel Cole.
Federal Reserve Bank of Atlanta Pres. Raphael Bostic was among those voting to cut the central bank's target rate. Florida is part of Bostic's region. Bostic has been telegraphing his intention to support lowering interest rates if inflation continued to slow, which it has. South Florida's consumer inflation was up 2.6% in August, it's slowest annual growth in three years.
READ MORE: Regional Fed boss sends clearer signal he wants lower interest rates
While a lower Federal Reserve target rate usually leads to lower mortgage rates, the ultimate impact on South Florida's housing may be muted.
A quarter of single family homes in Miami-Dade and Broward were purchased with cash in July, according to data from the Miami Realtors Association. Cash was used to buy 40% of all houses in Palm Beach County that month, which is the latest month for which there is data available.
Higher mortgage rates were partially blamed for an increase in the number of canceled home sales contracts earlier in the year. More than 16% of pending home sales went bust before closing in Miami-Dade County through June, according to data from real estate website Redfin. While that’s fairly steady over the past several years, it remains higher than the national rate.
But the condo market faces more challenges than borrowing costs.
The latest reforms for condo buildings and associations put in place after the deadly collapse of the Champlain Towers South building in 2021 go into effect New Year's Eve. Buildings over three stories tall and older than 30 years need to undergo a milestone structural inspection. Buildings with structural issues will need to have the money to fix them.
Beginning next year, condo associations also need to begin putting money aside for their reserves to be earmarked for regular maintenance of structural systems such as electrical and plumbing.
Despite Cole's expectation that the Fed rate cut will help regional real estate, he's more concerned about inflation returning."If inflation heats back up as I expect, it will then very bad in the long run," he told WLRN via email.
The Associated Press contributed to this report.
