February 29, 2024
Rising Interest
"No one expects rates to drop back down to 3% but a 5% to 6% interest rate is doable," says Blaine Flynn, Owner of Flynn Built (custom homes), Ensley.

Photo: Flynn Built

Rising Interest
"For a small to mid-size spec builder, having several months of no closings, we' are feeling the squeeze from higher interest rates much harder than the larger publicly traded builders will feel it," says Austin Tenpenny, President, aDoor Properties, Pensacola.

Photo: aDoor Properties

Economic Backbone: Finance

Rising Interest

Two Northwest home builders and a real estate agent discuss the impact of higher interest rates.

Carlton Proctor | 4/19/2023

Blaine Flynn

Owner, Flynn Built (custom homes), Ensley

Pipeline: “Higher interest rates have definitely slowed down our incoming sales pipeline. However, we do think that buyers are coming to terms with the fact that this is the new norm for interest rates.”

Adjusting: “We haven’t lost any existing sales due to the increased rates, but we have been making a conscious shift toward a lower-cost product. Buyers adjust their behavior to match their budget. They are no longer shopping for the 2,400- sq.-ft. home they wanted, but for the 2,200-sq.-ft. home that fits both their needs and their budgets. We witnessed some sticker shock in the third and fourth quarters of 2022, but buyers are adjusting to the new economic reality.”

New Norm: “No one expects rates to drop back down to 3%, but a 5% to 6% interest rate is doable. However, we are optimistic the feds will do one more small hike at their next meeting and then rates will fall for the rest of the year and stabilize in the 5%-plus range as the new norm.”

Austin Tenpenny
President, aDoor Properties, Pensacola

Affordability: “As a production spec home builder, we live and die by the 30-year mortgage. When the interest rates went from 3.5% to 6.5% and 7% in such a short amount of time, housing affordability in all price points got essentially crushed.”

The Squeeze: “In the short term, our sales have slowed drastically. For the first time in our company history, we have a high inventory of completed homes sitting on the ground, move-in ready, with no contracts. For a small to mid-size spec builder, having several months of no closings, we are feeling the squeeze from higher interest rates much harder than the larger publicly traded builders will feel it.”

Planning: “For longer term planning purposes, it has impeded our ability to make decisions on future land purchases. The cost of capital is high, home values are decreasing month over month and building materials are continuing to increase; it makes planning imperative.”

Stop and Start: “We knew that the 40%-plus home value appreciation, the bidding wars from home buyers and the chaotic market behavior that occurred over the last couple of years would never sustain. But stopping as quickly as it did has created a very challenging environment for builders across the country.”

Michelle Bartlett
Sales Agent, 1st Class Realty, Pensacola

“I think people are realizing that when mortgage rates were in the 3% range, it was a one-time thing, so they are still moving forward and buying homes because rent today is so expensive. I’m working with several clients now who are renting, and they tell me they are just going ahead and buying a home despite the higher mortgage rates. Worst case scenario, if the rates drop significantly, they can always refinance.”

Tags: Banking & Finance, Feature, Economic Backbone: Finance

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