Kevin O'Leary: Forget 3.5% Mortgage Rates, "Get Over It" and Buy Smaller
Soaring home prices and elevated mortgage rates are squeezing American homebuyers. Despite a recent Federal Reserve rate cut, "Shark Tank" investor Kevin O'Leary cautions against expecting significant relief. He argues that mortgage rates aren't solely dictated by the Fed and offers a blunt solution: buy a smaller house.
The Fed's Limited Impact on Mortgage Rates
O'Leary, in an appearance on “Good Morning America,” explained that the Fed's quarter-point rate cut won't necessarily translate into lower mortgage rates. He emphasized that fixed income and mortgages are primarily priced off five- to 10-year Treasury bills, which are influenced by broader economic concerns like inflation and federal debt, factors largely independent of the housing market. Therefore, even with Fed action, rising concerns about inflation can keep mortgage rates high.
"We're Never Going to See 3.5% Mortgage Rates Again"
O'Leary delivered a stark message to prospective homebuyers: “We’re never going to see 3.5% mortgage rates again, ever, in our lifetimes. But by the way, for 50 years, our parents and generations before us lived with 7% or 8% mortgages, so get over it everybody.” He acknowledges the dramatic increase in mortgage rates from below 3% to well over 6% in just a few years. Historical data, according to O'Leary, shows that higher rates are not unprecedented.
The "Chop, Chop" Solution: Buy Smaller
Faced with high home prices and persistently high borrowing costs, O'Leary suggests a pragmatic approach: “You just buy a smaller house and get on with life. Chop, chop.” This may become a necessity for many, as Realtor.com estimates the typical U.S. household needs an annual income of $118,530 to afford a median-priced home of $402,500, significantly more than the median household income of roughly $77,700. Buying smaller might be the key to homeownership for many.
Real Estate: Still a Path to Wealth
Despite the current challenges, real estate remains a long-term path to building wealth. While the initial hurdle may be higher, owning property continues to be a viable financial strategy. Adjusting expectations and considering smaller, more affordable options can make homeownership achievable even in today's market.
