What if waiting for 5% mortgage rates is the biggest mistake buyers can make today?
Kevin O’Leary, aka Mr. Wonderful, tackled that question in a recent Instagram reel, and his blunt answer was simple: No. Rates aren’t going back there anytime soon, if ever.
And his reasoning sounds a lot like what Byron Lazine has been saying on the Hot Sheet and other BAM podcasts for more than a year.
Let’s take a closer look.
Historical Context on Mortgage Rates
Asked point-blank if mortgage rates will ever drop below 5% again, O’Leary didn’t hesitate.
“No. I don’t. I don’t think so. I think it’s going to take a very, very, very long time for that to happen, if ever. I think the days of free money are over.”
O’Leary explained that the U.S. economy is moving into a more productive phase, driven in part by artificial intelligence. That productivity, he argued, is one reason stock market indices are hitting new highs.
He also predicted tariff issues will be resolved by the end of the year, with rates on foreign trading partners settling into a 10-15% range.
The bottom line, according to O’Leary, is that the world’s strongest economy isn’t likely to cut interest rates dramatically. Historically, 7% has been the standard mortgage rate for four decades. There were even periods when rates reached double digits.
One of Byron’s recent IG posts phrases it a bit differently, but the takeaway is the same:
By contrast, the 3.5% to 3.75% mortgages of the pandemic era were an anomaly. Anyone who locked in a long-term mortgage at those levels was very fortunate. But that chapter is closed.
O’Leary’s Advice for Buyers
If rates aren’t coming down to 5%, what should buyers do?
O’Leary’s solution is simple: adjust expectations.
“All that it means, though, is you’re gonna buy a house 30% smaller. That’s all. The way you adjust to mortgage rates, it doesn’t mean you don’t want a home. The way you adjust is you buy a smaller house. It’s not that hard.”
He outlined a basic rule of financial health. No more than one-third of your after-tax free cash flow should go toward a mortgage.
Couples should calculate this based on combined income if both are working.
The problem, O’Leary said, is that many buyers break this rule. They stretch to 50% or 60% of their income to afford a nicer home. That decision leaves them vulnerable. Beyond the mortgage itself, there are costs for maintenance, property taxes, and everything else that comes with ownership.
If more than a third of your cash is tied up in your mortgage, you lose flexibility. And, to quote O’Leary, that “really nice home eats you alive.”
The Bigger Picture
Buyers holding out for rates under 5% are likely to be disappointed, and that’s not even the worst of it. Waiting could cost these buyers opportunities to find the right home for them, take advantage of available cost-saving concessions (including mortgage rate buy-downs) and build equity.
In a September 8 Hot Sheet, Byron drove home the advantage of taking action early, before it becomes the thing everyone else is doing:
“Be an early mover if you’re going to make a price adjustment to your home. Be an early mover if you’re a buyer on the sidelines. Think about the buyers in 2020 who got out of their house in May and went and scored a deal. They not only got the low rate, they got the low price on the house… The buyers who bought in ‘21 did great on rates, but they did significantly worse on price than the early movers who bought in 2020.
“Early movers win… Early movers on the market right now are in control of the negotiating.”
The era of ultra-low mortgage rates is behind us. The question now is how buyers and sellers will adapt to a market where 6% to 7% could be the new normal.
