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Opinion: Dating the rate makes for a toxic relationship

“Date the rate, marry the house” is perhaps the most used phrase in mortgage and real estate marketing in markets like today, where interest rates are in flux. It should come as no surprise, as interest rates are moving higher and faster than at any time in recent memory. 

With that increase came a near-instant slowing in the housing market, as buyers became hesitant to move forward with the reality of now-higher payments on still-highly-priced homes. Other buyers were pushed from the market altogether, no longer able to afford or qualify for the payments on homes in their desired market.

While ‘date the rate, marry the house’ sounds like a great plan, it also ignores the very present risks that could be dangerous to buyers if not considered. For instance, a recessionary environment typically causes mortgage rate declines, and recession is generally accompanied by a sharp spike in unemployment numbers. Should your buyer be included in rising jobless figures, the rate they planned on dating may become their long-term relationship. 

Uncertainty surrounding home values

In terms of the direction of home values, there’s also some uncertainty. The years 2020 and 2021 brought an unprecedented run in home appreciation as the world adjusted to remote work environments. What’s to follow in markets that have seen 40% to 50+% appreciation in the past 36 months is unclear, but the possibility of a correction in prices in those markets is not unfathomable. If that possibility becomes reality, buyers who entered the market with low down payment loan options may be getting more serious with their interest rate than originally planned.

Heading to a declining rate environment?

To be clear, the market does appear to be heading toward a declining rate environment.  Recessionary indicators point toward a reduction in GDP. Historically, this has stymied the inflationary figures that caused rates to spike in 2022. 

Home prices also seem to be on relatively stable ground, thanks in large part to persistent single family inventory challenges. But to market to the masses based on hope and probability is to ignore reality; the reality that the only certainty we have in both housing and the broader financial markets, is uncertainty.

2019 isn’t too far back in the rearview mirror, and not a single expert’s forecast included the prediction that the world will shut down like it did during the pandemic. Russia’s invasion of Ukraine and the resulting global proxy war leading to inflationary pressures in the fuel and energy sectors wasn’t on many experts’ radar either.  

As of this writing, there is unrest in China and a human rights crisis unfolding in Iran. We don’t know what the long-term implications, if any, will be from these and similar socio-economical situations around the globe.

While I think rates will be lower in 2023, I don’t know how low they’ll go. And while I think home values are relatively safe (in most markets), I don’t know.  I do know that homeownership is worth marrying.

Long term, there has been no better way for the average American to accumulate wealth and improve their financial security. Homeownership, though, includes today’s rates. At a fixed rate, a home buyer knows what their monthly payment will be every month (excluding fluctuations in taxes and insurance.)

If they can afford today’s rate, they should buy a home with today’s rate. They can hope for a better rate tomorrow, but they shouldn’t plan on ‘dating the rate’ as if it’s a sure thing. 

Home buyers shouldn’t be making what might be the largest financial decision of their lifetime based on hope and speculation. Those types of decisions should be based on reality. 

Real estate pros, it’s time for a better marketing pitch. Those looking to ‘date the rate’ may end up in an entanglement they didn’t bargain for, and you don’t want to be the one who led them there.

John Meussner is a production manager with MasonMac licensed in more than 20 states. 

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
John Meussner at jmeussner@masonmac.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com