One of the critical factors in bringing the US housing market back to balance is the extremely low inventory, that is, very few properties available for sale in an environment of strong demand. Such an imbalance has pushed US home prices to skyrocketing levels, especially in Florida. Gradually, the market is showing signs of returning to normality. Some factors, however, remain an obstacle. Refinancing during the pandemic period is one of them. Understand in this article what refinancing is, how it works and why refinancing during the pandemic period affects the functioning of the market today.
What is Florida Home Refinancing?
As in Brazil, banks in Florida also offer the possibility of refinancing the property itself. Refinancing works like a home loan (loan). In the case of financing, the applicant wants to buy a property. In the case of refinancing, the applicant is already the owner and intends to refinance the property to take advantage of lower rates or to raise funds, placing the property as collateral.
Why there was high demand for refinancing during the pandemic
When the pandemic hit, in early 2020, owners who already had their properties listed for sale decided to take them off the market and wait. After all, in a context of so many uncertainties, the most sensible thing is to “don’t move” and stay at home. The high risk of contagion when receiving strangers to show the property also discouraged many owners.
As a result, the property inventory, mainly single-family homes, plummeted.
At the same time, the US government adopted policies to stimulate the economy. The most striking of these was the drastic reduction in interest rates. American interest rates have reached their lowest level since 1970.
Those owners who previously wanted to sell, but had their plans disrupted by the pandemic, now had one more reason not to put their properties up for sale. With interest so low, why not refinance the property and lower the mortgage installment. There was, therefore, a huge demand for this financial product.
Why refinancing at the critical time of the pandemic impacts the market today
It would be natural that, with the gradual return to normality and with more discouraging indicators for buyers (higher prices and interest), the inventory would return to normal levels faster. After all, owners who previously wanted to sell can now more easily list their properties. At the same time, demand should calm down, as prices are high and interest rates are higher.
In fact, indicators show that the number of listings increased in May, but it is not possible to say that this is a trend or something specific.
It happens that, precisely because of the refinancing made during the pandemic, owners are now discouraged to sell the property and buy another. Because?
Refinancing, like financing, brings fees linked to the service, which can cost from 2% to 5% of the refinanced amount. It’s like a new closing.
Some refinancing contracts also have clauses with penalties, if the person does not stick to the contract for a minimum period, which can reach one year.
Also, when selling the property to buy another, the current owner will need to refinance the new one at current market rates, which are already considerably higher than those offered by banks during the pandemic.
High demand and high competition among buyers also discourages selling
Another aggravating factor is demand, which remains very high and creates an extremely competitive market for buyers. The same house receives 5 to 6 offers in a situation that the market has come to call “Bidding-War”. Such competitiveness discourages owners from selling to buy another one, as the possibility of finding a new ideal property becomes more difficult.
Demand does not appear to show signs of slowing down in Florida. There is a significant flow of new residents coming from other states. Florida expects to receive 849 new residents a day by 20026. There is no indication that developers will be able to supply the market with new units in time to satisfy all this demand.
High upside potential (opportunity for investors)
For these and other reasons, the Florida real estate market tends to remain heated and with very high potential for appreciation. Now is a great time to buy and make a solid dollar investment.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida. If you want to know more about real estate opportunities in Orlando, Miami and Tampa, get in touch right now and chat with me on WhatsApp: +1 305 318 6968 (Heloisa Arazi).