How Long Before Interest Rates Fall?

Many would-be Minneapolis and St Paul duplex buyers and sellers have told me in recent weeks they want to wait until spring to make a move. While it hasn’t always been said during these conversations, it’s been implied everyone is waiting for interest rates to fall.

That got me thinking. Historically, when the Federal Reserve has lowered interest rates, how fast was it, how much did they go down and what caused it?

I was stunned by what I learned.

Almost always, the kinds of rapid, substantial interest rate reductions most of us are hoping for were precipitated by a near-catastrophic event. For example, when Covid-19 appeared in March 2020, the Federal Reserve lowered rates by 1.5 percent (150 basis points) in just 30 days.

At the onset of the Great Recession, the Feds lowered rates 3.25% in just seven months.  During the Gulf War Recession between July 13, 1990 and September 4, 1992, they lowered rates a total of 5.25% (525 bps).

In other words, in order to realize the kind of rapid rate decline we are all hoping for between now and spring, there would have to be an event so large in scale and disruption that values or even buyers desire to buy any kind of real estate at all may be affected.

It’s important to note historically the Federal Reserve hasn’t raised rates overnight either. They took three years to raise rates a total of 2.25% as we began to climb out of the Great Recession. And this most recent round, with a cumulative increase of 5.5%, has been spread over an 18-month period.

Given their track record, even if the Federal Reserve believed it was time to back off rate hikes, we are likely looking at 18 to 36 months before we see substantive drops. In light of human nature, even if that happens we will likely all talk ourselves into believing they haven’t hit their bottom yet. And we’ll know we missed the best time to buy or sell only when we recognize it in our rearview mirrors.

The best time to buy or sell real estate is when it makes your life better. Either a new investment property helps you create financial wealth or provides you with a home. And when that real estate ceases to help you achieve bigger goals in its present state, or steals something of value from another part of your life, it’s the right time to sell.

Please feel free to reach out to me when it’s time in your life for something to change.