3 Reasons Suze Orman Says Lower Interest Rates Won’t Help as Much as You Think To Buy Real Estate
Written by
Peter Burns
Edited by
Amber Barkley
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Recently, mortgage rates have begun to drop. From an average of 7.4% in November 2023, 30-year mortgage rates have dipped around one percentage point and now hover around 6.5%. Historically, lower interest rates mean more affordable housing, causing many to consider making a big purchase.
However, Suze Orman — financial advisor, author and host of the “Women & Money” podcast — cautioned her listeners that it still might not be time to buy. In her podcast episode “Suze School: Four Things You Need to Know,” she explained why a lower interest rate might not mean lower property prices.
Some Buyers Won’t Sell
Just because interest rates drop doesn’t mean every property will suddenly be available.
Orman pointed out that homeowners who negotiated their mortgage years ago and have a 2% to 3% interest rate aren’t going to sell now that rates are much higher. Though Orman predicted that interest rates may drop to 4% or possibly 3.5%, this doesn’t offer an incentive for those with lower rates to get out of their mortgage.
Supply Isn’t Growing
As of late 2023, there has been a housing shortage of between 4 million and 7 million homes across America, Pew Charitable Trusts reported. Even with interest rates falling, there is still not enough supply to meet the demand, and, as Orman pointed out, that means real estate prices are unlikely to go down.
When housing is scarce, purchase prices will always be higher, making lower rates a less effective means of saving money. Lower rates may also mean more competition to buy a house, which can increase real estate prices even more.
It Takes Time
Interest rates can make real estate more affordable, but, Orman said, “Just know that the decrease in interest rates, truthfully, for you to feel the result of them, is going to take some time.”
Buying and selling properties can take a long time, meaning the market will take a while to shift. Buyers, sellers and investors may have delayed reactions and wait to see how the conditions change before making any moves. This, in turn, delays the effect of the lowered rates.
What You Should Do
For those who are ready to buy property now, Orman offered some advice. When rates are very low, it’s best to get a fixed-rate mortgage that lasts 15 or 30 years. Doing so will lock you into that rate for the duration of your mortgage, regardless of what happens in the market.
Currently, it’s difficult to predict if rates will continue to fall or if they will rise again. Because of this, Orman said to consider an adjustable-rate mortgage. Adjustable rates rise and fall with the market, which can be a positive or negative for the buyer.
If you get an adjustable rate and it drops significantly, Orman suggested refinancing your mortgage. By paying off your adjustable mortgage with a fixed-rate loan, you can lock into the lower rate when it becomes available.
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