‘Dating the Rate’ Has Turned Into a Shotgun Wedding
Homebuyers have stomached high mortgage rates since mid-2022. Many assumed rates would drop by now.
If rates fall, the logic went, they could refinance and ease the burden of their $3,000, $5,000, or even $7,000 monthly payment.
“Marry the house and date the rate,” was the popular tagline used by industry professionals when relaying the strategy to buyers.
Thanks to recent inflation numbers, though, homeowners looking to drop their mortgage like a needy girlfriend might have to stay in the relationship much longer, marrying the rate, shotgun wedding style.
Inflation Says Mortgage Rates Could Be High For a Long, Long Time
Homeowners who planned to break up with their mortgage rate are now bracing for a long, drawn-out commitment.
The reason: inflation.
Inflation is one of the best predictors of mortgage rates, which have followed inflation for at least 50 years.
World Bank, Inflation, consumer prices for the United States [FPCPITOTLZGUSA], and Freddie Mac PMMS data, retrieved from FRED, Federal Reserve Bank of St. Louis, April 26, 2024.
Low mortgage rates can’t co-exist with high inflation.
Investors on Wall Street don’t want a mortgage bond paying 3% annually. It gives them no return after inflation takes its cut.
So, without a financial meltdown, inflation has to go down before we see low mortgage rates.
The only problem is the Federal Reserve is having a heck of a time reducing inflation. Despite jacking up the federal funds rate at one of the fastest paces in history, inflation is incredibly sticky.
The March 2024 core personal consumption expenditures (Core PCE) report showed prices rose 2.8% since one year ago. The Fed’s target is 2%. It’s also higher than economists expected (2.6%) and higher than February’s reading (2.5%).
Mortgage News Daily reported an average 7.45% 30-year fixed rate shortly after the report's release.
It’s not the inflation report recent homebuyers wanted to see.
High Inflation Jeopardizes Fed Rate Cuts
Much of the hope for lower rates was tied to a projected three Fed rate cuts in 2024. Persistent inflation has dashed those dreams.
A leading Fed predictor, the CME FedWatch Tool, presents the harsh truth:
There’s effectively no chance of a rate cut in June, a given at the beginning of the year
The odds of a September rate cut are just 45%
19% of investors say “no rate cut in ‘24”
The tool has been notoriously accurate in the past but does change over time with new data.
Unless inflation unexpectedly turns, we are looking at zero or one Fed rate cut in 2024 – likely not enough to move mortgage rates.
Is it time for “date-the-rate” homeowners to start ring shopping?
Get a personalized rate quote from a lender here.
What Should ‘Date-The-Rate’ Homeowners Do Now?
Critics of the “date the rate” strategy are having their day in the sun. They were right in saying that the strategy could be harder to implement than it sounds. Realtor.com offered solid reminders:
Rates may not go down
Rates might fall, but not enough to matter
You may not qualify for a refinance
Refinancing can require outrageous fees
But rubbing it in isn’t helpful for homeowners in a tight spot. Here are practical steps to consider if you’re stuck in a bad relationship with your mortgage rate.
1. Rent Out a Room
In case you haven’t noticed, there’s an affordable housing crunch in the U.S. That means plenty of demand. While less privacy is a downer, renting out a room takes much less of your time than getting a second job. If you can add a separate entrance to a section of your home, this strategy works even better. Check your local jurisdiction’s tenant law and always screen applicants.
2. Pick Up Flexible Side Jobs
It’s much easier to get side work than it used to be. While financial gurus like Dave Ramsey tout the benefits of pizza delivery, you still have to commit to a schedule and report to a manager. Uber, Uber Eats, DoorDash, and other flexible side gigs help you work when you can while providing decent income.
3. Fast Food Now Pays Fast Money
Your pride might take a hit, but there’s now good money in fast food, especially with establishments where tips are common. California just passed a $20 minimum wage for fast food establishments, and other states aren’t far behind. Including tips, you could make as much per hour as some recent college graduates.
4. Find Contract Work
If you have valuable skills, plenty of companies need work done but don’t want to hire a full-time employee. Reach out to companies that may need your services. Start on LinkedIn. If you’re lacking connections, create profiles on popular freelance sites:
5. Cut Expenses
This one is hardly worth mentioning because you have probably already cut out non-essential expenses. Ending your $17 monthly Netflix subscription won’t help. Consider bigger moves that could increase your cash flow like selling a car with a large payment and pay cash for a cheaper one.
6. Break Up With the House
A last resort could be to sell the house to get out from under the payment. You may have to sell it at a loss if you purchased in the last few years, considering fees and commissions. Exhaust all other options. Try to hang on in case rates do come down enough to refinance.
Could Rates Still Fall?
Rates could still fall in the next 12 months. The future is as unpredictable as 2024 has been.
It’s still early in the year, and 2025 could present refinance opportunities, too.
Many signs point to a 2024 recession, which could drive down rates. There has been an inverted yield curve since July 2022, which has correctly predicted every recession since 1955 with only one false positive. Recessions typically start six to 24 months after the yield curve inverts, putting a recession in play by July 2024.
However, it’s no guarantee. And if a recession does hit, rates might go down, but your job may also be in jeopardy.
The best case scenario is that the economy stays reasonably strong but inflation falls enough for the Fed to ease its monetary policy – i.e. cut rates. A relaxed Fed could usher in low enough rates to make refinancing viable for some homeowners.
It’s Still a Good Idea to Own a House – If You Can Marry the Rate
It's not how homeowners wished things would go, but over time, your home will prove to be a solid investment.
And if you're thinking of buying, follow best practices to find your comfortable payment.
Homeownership is still a worthwhile goal – but not if you plan to date the rate.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
