Buyers waiting for mortgage rates to plunge should be careful what they wish for

A housing market expert says Americans should be thankful that mortgage rates aren’t falling too drastically, as such a scenario would imply a major recession is underway.

According to Neil Christiansen, a home loan specialist at Churchill Mortgage, “A significant drop in rates would only happen if the U.S. went into a deep recession.”

If that were to happen, the Federal Reserve would have no choice but to “cut rates drastically” to jump-start the economy. Thankfully, that’s not going to happen anytime soon, said Christiansen.

Christiansen and other housing experts expect mortgage rates to fall over the next few years, but not by a significant amount. According to Discover Home Loans vice president Rob Cook, most forecasts are calling for mortgage rates to remain above 6% by the end of 2025.

This doesn’t mean rates can’t fall below 6% much sooner, but they won’t be there very long.

Jeff Tucker, the principal economist at Windermere Real Estate, told CBS News the Fed will begin lowering rates in September but doesn’t think “that will push 30-year mortgage rates below 6%.”

This is a problem for potential buyers, who have been “staying patient” and feel encouraged by the recent drop in rates, according to Mortgage Bankers Association economist Joel Kan.

Buyers will have to remain patient for much longer if they expect affordability conditions to improve.

The mortgage rate magic number is closer to 5%

According to Reventure App CEO Nick Gerli and Moody’s economist Nick Villa, homebuyers are likely to remain sidelined until mortgage rates drop to the low 5% range. This level would also encourage homeowners to start listing their properties again.

Until then, the gap between current mortgage rates and the ones that most homeowners obtained remains too big. As Creditnews Research reported, nearly two-thirds of American homeowners financed their properties at less than 4%.

According to Redfin data, six out of seven Americans with mortgages are locked into rates below 6%.

“The mortgage rate lock-in effect is prompting many homeowners to stay put, contributing to America’s housing shortage,” wrote Redfin analyst Lily Katz.

Redfin Premier real estate agent Blakely Minton said he has a dozen homeowners who would like to sell, “but aren’t willing to give up their 3% interest rate for one that’s more than twice as high.”

“Many of those sellers will list if rates get back down to 5%,” said Minton.

Even the Federal Housing Finance Agency (FHFA) has recognized this “golden handcuffs” effect. A recent FHFA report claimed that homeowners are 18.1% less likely to sell their homes for every additional point that mortgage rates increase above the one they currently have.

According to Bank of America, the gap between current mortgage rates and the effective mortgage rate most homeowners have could take up to eight years to narrow.

In the meantime, housing will remain out of reach for millions of Americans.