James' World 2

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There’s a popular saying in real estate: “Marry the house, date the rate.” In other words, you’re stuck with the home you buy, but mortgage rates are fickle — you borrow money at one rate, then someday you refinance and get a better one, shaving hundreds of dollars off your monthly payments.

But as anyone swiping on the apps will tell you, dating isn’t all it’s cracked up to be. That’s especially true for anxious buyers who are holding out hope that high rates will soon drop. Like hopeless romantics waiting for something better to come along, these wannabe homeowners could be making a grave miscalculation.

Buyers early in the pandemic got one of the best deals in history when borrowing rates sank to record lows. Then, as the Federal Reserve began its battle against inflation in 2022, mortgage rates shot up, eventually hitting a 20-year high in October. A huge swath of homeowners don’t want to give up the cushy loan terms they scored a few years ago, and potential buyers just watched their spending power plummet, so both groups are hanging out on the sidelines.

Many prospective buyers are now rooting for rates to fall again. In some ways, their logic makes sense. Everyone’s talking about the “lock-in effect,” or the idea that would-be sellers aren’t putting their

homes on the market because they have such good mortgage rates; if rates fall, then maybe more owners would be willing to make that trade-off. It would also be cheaper to borrow money for a home — the difference of even a couple of percentage points on a mortgage rate can mean paying hundreds of extra dollars every month for a loan tied to the same house.

These observers miss a crucial point, though: When rates fall, demand shoots up. Buyers flood back into the market, adding to the competition and possibly driving up prices. Over the past decade, there’s been a clear correlation between mortgage rates and inventory: When mortgage rates fall, the number of available homes for sale at a given moment shrinks. And when rates go up, more homes sit on the market, and inventory rises.

If borrowing rates do end up falling this year, as many predict, it could trigger bidding wars and the kind of frenzied dealmaking that defined the pandemic-era housing boom. So while it may be uncomfortable right now, there’s a good chance that buyers’ prospects won’t be getting better anytime soon — in fact, they could get worse.

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While it may be uncomfortable right now, there’s a good chance that homebuyers’ prospects won’t get better anytime soon. twomeows/Getty Images; Jenny Chang-Rodriguez/BI

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