Is “Date The Rate” Dead or Just Delayed?

This time last year, Realtors and Lenders went on a social media tour singing the latest hit song, “Marry the House, Date the Rate,” while pitching seller closing incentives and 2-1 Buydowns. Inventory spiked, prices dropped, and seller credits were becoming a thing. Mortgage rates began taking a toll on homebuyer affordability, and many believed housing was doomed.

Interest rates peaked on November 10th with a Freddie Mac average of 7.08%.  Almost overnight, a sudden strong reversal in the market occurred, with rates bottoming on February 2nd at 6.09%. The “Date the Rate” crowd looked like geniuses, and housing started to rebound as prices rose and inventory continued to push lower.

Rates traded in the 6s until early August, when they suddenly jumped well into the 7s and, in some cases, low 8s! As rates moved higher, pending home sales went lower. With rates that high, most current homeowners could not afford to buy the house they currently live in, let alone move up to something bigger…or even downsize, for that matter! At that same time, many first-time homebuyers grew more cautious, bringing back late 2022 vibes.

Cancel Culture Attacks "Date the Rate"

As we progressed through this year, “Date the Rate” was caught in the cancel-culture movement. The angry Twitter crowd was screaming, “See, you were wrong. Realtors and Lenders should be ashamed of themselves for telling everyone they could refinance next year (2023) when rates dropped.”

While those who pitched refinancing quickly were flat wrong, there was a compelling argument, “Aren’t you glad you purchased when you did because now rates are higher and so are sale prices?” Housing prices remained resilient to higher rates due to extremely low inventory levels and significant wage increases. While fewer buyers existed in the market, they exceeded the number of active houses for sale. Supply/Demand principles have yet again been proven.

The question begs, is “Date the Rate” dead or just delayed? In October 2022, most major analysts believed mortgage rates would be in the low-5s right now. News flash, they were very wrong. They were also very wrong in late 2021 when they thought mortgage rates would end 2023 in the low 4s. Can those analysts even be trusted? They now believe mortgage rates will stay in the 6s through early 2025. Given how the odds have played out for these analysts in the past few years, I would be tempted to take the under on that bet.

Lessons From The Past

The last Fed monetary tightening cycle we experienced ended in 2018, coincidently with rate hikes and commentary mirroring today’s patterns. The Fed continued to say, “The economy is quite strong. A soft landing is probable. We will take a data-dependent approach moving forward.” At that same time, business leaders and analysts in the Twitterverse were screaming, “The economy is screeching to a halt. You went too far. You stayed too high for too long. You must pivot now!”

What happened next gives us a glimpse into what 2024 could be. The Fed made drastic adjustments in mid-2019, doing a complete 180 as the economy and wage growth stalled. They cut interest rates, ceased their quantitative tightening, and began to reinvest their bond portfolio runoff.

Interest rates fell from the low 5% range in late 2018 to the mid-3s in 2019. Every homeowner that purchased in 2018 refinanced and saved hundreds on their mortgage payments and, through an updated appraisal, experienced a 5-10% increase in the value of their home.

Is History About To Rhyme?

Mark Twain once said, “History never repeats itself, but it does often rhyme.” It is beginning to look like 2024 will turn out to be much like 2019. I believe everything analysts thought would happen this year has been delayed due to the powerful pandemic response from the Fed and the US Government. (Be sure to check out this video for a deeper understanding of why the economy has been fighting the Fed so well for longer than many anticipated) Headwinds still exist, and this could turn out to be another big head fake with next year looking just like this year…but that is starting to look unlikely due to the weakness seen in most of today’s economic data.

If you have been thinking of buying a home but are scared by the payments from an online mortgage calculator, 2024 may bring opportunity your way. While it is still a little premature to claim victory against higher rates, given the probabilities, I think starting conversations with your Realtor or Mortgage Loan Officer would be a good idea. Map out all the “What-Ifs” and “Must Haves”, and set up your online searches based on location, price points, and payment parameters. Be prepared to act when your perfect situation arises. It may happen sooner than you think.