Condo market troubles go beyond interest rates: construction, insurance and supply are key

The useful part

Rates are too high, and once the Federal Reserve moves, buyers will come off the sidelines. With the news Thursday that Freddie Mac 's 30-year fixed-rate mortgage averaged 6.66% over the last week, rates are certainly one of the headwinds in the market. Meanwhile, all eyes were on Jackson Hole, Wyoming, with Fed chair Kevin Warsh expressing concerns about high inflation while remaining mum on forward guidance.

How it works

• Simkins said land transactions in South Florida have slowed sharply, even as a wave of new condo projects works its way toward the market.
• Short-term Treasury yields jumped after the speech, while longer-term yields were up by a smaller amount.
• South Florida's condo market is one example of a sector that has more hurdles to overcome than what the FOMC decides in mid-September.
• One private lender says treating rates as the whole problem misses most of what is driving the slowdown.
• Zack Simkins (pictured top), managing director at Vaster, a Miami-based private lender, said financing costs are only one piece of a much larger puzzle.

What to take from it

So if these things are too elevated, that also pushes people out." That cost pressure is layered on top of a supply problem building for years. Vaster finances land acquisition for these projects rather than the vertical construction itself, putting that risk close to home. "If your neighbor fire sells their unit because their mortgage is due or they got hit with a reassessment and they can't write that large check, then they're going to sell it under value.

Example or evidence

• "If you're building a 600-unit condo project, that's a lot of units to sell," he said.
• "But it's also the cost of these developments, the carrying cost of the projects." Construction and insurance costs Simkins said the price of building and insuring a condo project is doing as much to keep...
• "The financing components with the rates, lenders coming in, willingness to provide alternative financing in a favorable manner, that's going to promote transactions," Simkins told Mortgage Professional...
• "If you start to control inflation, then the construction costs may go down, which will allow pricing to maybe go down to attract new buyers," he said.

Details worth keeping

Not everything affecting local markets hinges on Fed decisions. "Right now, construction costs are high, so the pricing has to be high. Insurance costs are high, so pricing has to be high.

Related coverage

• Conservativedailynews: by Michael Busler at CDN - The average rate on a 30-year mortgage is about 6.65%.
• Indiatimes: In Washington, the housing market is revealing an intriguing dynamic, with many properties available at discounted rates—almost one-fifth of homes listed currently are priced lower than what they were...