Will Fed Rate Hikes Stall South Florida’s Economy?

by Isaac Benmergui, Esq on January 30, 2017

 Will Fed Rate Hikes Stall South Florida’s Economy?The Federal Reserve announced in December an increase in the benchmark interest rate by 0.50 to 0.75 percent. Is that enough to stall comeback progress in the housing market?

The interest rate increase alone isn’t enough to topple progress in South Florida, but rising rates along with some other factors in play this year could mean a rocky road ahead.

First, the Fed’s interest rate increases are less than 1 percent, which is significant to buyers’ psychology. Just like the $349,000 home seems less expensive than the $350,000 home, buyers see interest rate increases as less threatening when they are less than 1 percent. However, the Fed has indicated that we may see several increases in 2017, which would likely put interest rates more than 1 percent higher by the end of the year.

Second, the Fed’s increase signals a desire to slow borrowing and risk, but many South Florida banks had already decided to do that. Commercial developers have already been cut off from most traditional funding due to oversaturation in the condo market. Many have turned to EB-5 visa funding, but that program may be tightened in April 2017, when the current thresholds for investment expire.

Third, promises by President-elect Trump to cut taxes and limit government spending has triggered a sell-off in the bond market, which also increases the cost of borrowing for banks that base their interest rates off bond yields. These increases could go even higher depending on whether the President-elect follows through on his promises.

Lastly, the strength of the U.S. dollar is currently limiting the influence of foreign buyers, who are not affected by any of the above factors. The idea that immigration may also be further restricted in the future has also discouraged foreign buyers.

Although none of these factors come as a surprise, many economic experts saw at least two to three years remaining in the upward trending of the current economic cycle. Instead, they now think South Florida has begun the downswing.

Call Miami Real Estate Lawyer Isaac Benmergui at 305.397.8547 and set up a no charge, no obligation consultation to discuss your case. We have over a decade of experience handling Real Estate and Civil Litigation cases throughout Miami and South Florida, and will use our expertise to help your case to the best of our abilities.

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