Puerto Rico real estate market has recently experienced a marked softening in activity, as a result of repeated increases in interest rates.
Puerto Rico Real Estate Market has recently experienced a marked softening in activity, as a result of repeated increases in interest rates authorized by the Federal Reserve Bank (the Fed), which have caused market pressures to remain uncharacteristically low.
The goal behind increasing the rates is to slow down the economy enough to curb inflation but without causing a recession. So far, with each increment in interest rates, a similar increment in inflation has occurred, when it didn’t stayed the same.
Meanwhile, lending rates have gone up steadily in recent years, and though the housing industry is not in the grip of a recession just yet, it has been reduced substantially in terms of activity, with interest rates being four to five percentage points higher than they were a year ago.
Taking a look at the interest rates today and those in 2020 and 2021, we will notice significant differences between the two. It is important to remember that you could have gotten a mortgage back then for about 3.5 percent of its value. “A regular mortgage is now 7.5 percent. But it’s not just that interest rates have gone up, it’s that they have done so very quickly.”
A buyer who has been pre-qualified for a mortgage loan may lose that qualification within a week when the cost of borrowing increases because of such hikes, in the event that the cost of borrowing increases over the course of a week. As a result of higher interest rates, the mortgage payments will also increase, which is why you should be aware of this.
Throughout the past few years, banks have been trying to reinvent themselves by trying to find ways to create value for their customers, but it has been a challenging situation. There is a very volatile market right now, which changes not only from one month to another, but also from one week to another.
Using the low interest rates available in the market last year, the audience that a customer seeking a $100,000 mortgage at the time of the mortgage’s availability, would end up with a monthly payment of approximately $450 (principal plus interest). That same mortgage today, at a 7.5% interest rate would pay $700, or $250 more.
When it comes to the cost of all other consumer’s needs, this extra mortgage payment is onerous, pointing out that one might think it is not a significant increase, does the math and shows that inflation has increased the cost of all consumer’s needs.
The mortgage market is down by 40 percent (total sales) from January to September 2022 when compared with last year. As a result of the monumental increase in interest rates, the refinancing market has also been virtually eliminated as a result of the monumental increase in interest rates,”she said. What we are experiencing now is a considerable decrease in sales as a result of the monumental increase in interest rates.
There are very few refinancing transactions taking place, but those are mainly being done for specific customers who are mainly looking to cash-out on their equity so they can consolidate their debt or improve the property either by making some repairs or improving it in some way.
This means that in either case, these customers may still be able to maintain a mortgage payment similar to the one originally had, at the cost of prolonging the loan’s life span.
When interest rates change, especially when they are changed at a rapid pace, according to Puerto Rico Real Estate, people start getting nervous about real estate.
Although the real estate market may have shrunk as a result of the recession, it is far from a crisis.
As a result of low interest rates, people got used to them. Although the market has seen much higher interest before, still, many people worry because these changes can adversely affect property values and, if a buyer is close to the cut-off point for qualifying for a mortgage loan, the transaction could be put at risk,” said Puerto Rico Real Estate.
Even though such a scenario is possible, Puerto Rico Real Estate admitted that she operates in the upper end of the real estate market, more specifically, the second homes and vacation properties market.
It has been reported that this segment of the real estate market, which was identified by Puerto Rico Real Estate as consisting of properties valued at more than $750,000, has not been significantly affected by the recent interest rate hikes.
In their opinion, “high-end buyers have not stopped buying despite the high interest rates,” she said. “Nevertheless, if they haven’t purchased a property, they wait for a while for the market to stabilize.”
The rate hikes are not necessarily affecting high-end buyers as they have greater purchasing power and can choose to purchase in cash if they so choose.
Is Puerto Rico in a Crisis?
In fact, according to Puerto Rico Real Estate, there are a lot of new real estate agents in the field who, as a result of their inexperience, consider the current situation as Puerto Rico in a crisis. As a matter of fact, they contends that the opposite is true.
During the year of 2008, we had interest rates that we haven’t seen before. A 15-year mortgage had an interest rate of 1.89 %. In those days, the interest rate on FHA (Federal Housing Administration) loans was typically between 7 and 7.5%, and that was considered low at the time. During the peak of the real estate market in Condado, we sold properties at an average value of 10.5 to 11%… Who were the clients? They were all happy.
There has been a substantial increase in the number of Puerto Ricans who are returning to Puerto Rico after retiring, especially those who reside in the United States and do transactions between $150,000 and $450,000 over the last couple of years. They are selling their homes on the mainland and coming to Puerto Rico for their retirement, often buying their new homes in cash.
According to Puerto Rico Real Estate, a lot of east coast baby boomers used to retire to Florida but now they do notbecause it has become too expensive there, because it has become too expensive for them.
For Puerto Ricans living on the east coast of the country, Florida is not an option anymore. Considering the price of living, property taxes and medical insurance, it is not their first choice to live in Florida, and they are coming here right now for these reasons. As a matter of fact, they are the ones who are buying properties for $350,000 and $750,000 in cash.”
It is worth noting at this point that Puerto Rico Real Estate are quick to point out that there are American buyers on the island, but that they are buying more expensive properties, and that there are not that many of them.
Is Real Estate Going up in Puerto Rico?
It is difficult to assess the outlook for the real estate market in Puerto Rico in the near future, according to Puerto Rico Real Este. Currently, the Fed has already released an announcement that mentions that there may be a 75 basis point increase in the interest rate in the near future, and the Fed has already announced that the interest rate will probably increase in the near future. For them, it does not seem that the outlook is going to change very much, but they guess that for now everything is going to stay the same, so there is a possibility that the high end market of the PR real estate is going to continue to grow.
It is hoped that the Puerto Rico real estate market will gradually stabilize over the next couple of years, and that the island’s real estate market will do so without any major incidents. Puerto Rico Real Estate believes this is the case; they haven’t been in a time when 10.5 to 11% was a piece of cake.
Is it a Good Time to Invest in Puerto Rico?
The real estate industry is considered the island’s biggest untapped resource. According to the Puerto Rico realtors, one of the next steps in real estate development will be to promote the idea that Puerto Ricans come back to the island for their retirement, along with Americans who are interested in making the island their second home. As a result, is it a good time to invest in Puerto Rico. PR real estate market will have a new source of income going forward.
It has been claimed that many of these people have families who will come and visit their relatives who live in Puerto Rico, thereby expanding the tourism industry. “Costa Rica, Colombia, and the Dominican Republic are all making their countries into retirement destinations in the United States by marketing them as such. There is no reason why we can’t do the same?
