The Fed, mortgage rates, and housing in Miami

A cycle of cuts in 2024

In September 2024, the United States Federal Reserve (Fed) began a cycle of cuts with a 50 basis point reduction. In November, it cut another 25 points to a range of 4.50% to 4.75%, and on December 18 applied a third 25-point cut, leaving the federal funds rate at 4.25% to 4.50%. In total, 100 basis points were cut over four months.

The Fed rate is the benchmark for very short-term loans between banks. Its effect on mortgages is indirect.

Why mortgages didn’t drop the same way

30-year mortgages in the U.S. move more with long-term Treasury bonds and inflation expectations than with the short-term rate. According to Freddie Mac’s weekly survey, the average 30-year rate reached 7.17% at the end of April 2024, dropped to 6.35% in August, its lowest level in over a year, and rose again to 6.44% by mid-October.

In other words, although the Fed cut 100 points, mortgages didn’t fall proportionally. For buyers with credit, financing costs remained high compared to pre-2022 years.

What happened with prices in Miami

Despite high rates, housing prices in Miami kept rising. According to Miami Realtors, in December 2024 the median sale price of single-family homes in Miami-Dade increased 10.7% year-over-year, from $610,000 to $675,000, and existing condo prices rose 4.9%, from $410,000 to $430,000. Single-family homes closed 2024 with 10,738 transactions, 1.9% more than in 2023.

Nationally, the Case-Shiller index recorded a 3.9% annual increase in December 2024. Miami outperformed the national average.

Why it matters for short-term rentals

When buying a home is expensive due to rates, more people keep renting and more travelers seek alternative accommodations. At the same time, buyers financing rentals need rents to cover higher payments. This cost pressure is one reason why it’s important to analyze net profitability, not just gross income.

With fractions, there’s no credit involved: rate risk isn’t in your payment, although rates do affect the market value of properties.

• High rates: fewer buyers with credit and more price pressure.
• Lower rates: more buying demand and possible appreciation.
• In both cases, rental income depends on occupancy and asset costs.

Risks to consider

Miami’s market has particularities: costly insurance due to hurricane risk, new condo rules in Florida, and a component of international buyers sensitive to the dollar. All this can affect an asset’s value and costs.

Conclusion

U.S. monetary policy sets the cost of money, but housing prices also depend on local demand, available supply, and factors like migration and tourism. Miami showed a firm market in 2024 despite high rates. To invest wisely, combine this macro view with the numbers of each asset.

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