Interest Rates Only Drop When the Economy Slows — And That’s the Part Nobody Wants to Say Out Loud
There’s one thing I’ve heard over and over from would-be Minneapolis or St Paul duplex sellers this fall. “I’m going to wait until spring, because I think interest rates will go down and my property will be worth more.”
This logic is flawed. I’ll explain why as plainly as possible: Interest rates only fall when the economy slows down. Period.
If you are waiting for lower rates, you are—whether you mean to or not—you’re waiting for bad economic news.
The Fed Doesn’t Cut Rates Because They Feel Like Being Helpful
The Federal Reserve has a mandate: keep inflation under control and maintain stable employment.
When the economy is running too hot—strong job market, high consumer spending, rising prices—the Fed raises interest rates to cool everything down.
They don’t cut rates again until the economy shows clear signs of stress like:
- Higher unemployment
- Slower consumer spending
- Lower business investment
- Signs of inflation finally easing
Rate cuts aren’t a reward. They are are an intervention.
Look at History: Rate Cuts Follow Trouble
Here’s what has actually happened historically that caused the Federal Reserve to aggressively cut rates:
- 2001: Dot-com bust → Fed cut rates aggressively.
- 2008–2009: Great Recession → Rates slashed to near zero.
- 2020: COVID shutdown → Emergency rate cuts again.
Show me one instance—just one—where the Fed cut rates during a strong, growing economy. You can’t, because it hasn’t happened.
What This Means for Duplex Buyers
Waiting for lower rates sounds responsible, but here’s the hidden cost:
When rates finally fall, lenders tighten standards, employers freeze hiring, and job security becomes shaky.
Banks become more risk adverse. They tighten lending standards in order to protect themselves. The result might be you qualify for a lower purchase price than you do now.
Remember. You can always refinance. You can’t rebuy at this year’s prices later.
What This Means for Duplex Sellers
Those waiting for rates to drop, with the hope this will cause prices to rise must remember that lower rates usually come with:
- Higher unemployment
- Lower consumer confidence
- Reduced lending activity
- Slower overall market conditions
These things cause buyers to be cautious. And cautious buyers don’t bid up prices.
Watch the Right Indicators
If you want to know where rates are actually headed, follow:
- Core PCE inflation. If it drops dramatically, consumers aren’t spending on the essentials.
- Jobless claims. If they’re up, rates may come down to stimulate business grown.
- Wage growth. If it’s declining, employers are likely seeing proits decline.
- GDP trends. If it’s declining, the Fed will lower rates to stimulate growth.
- Bond market expectations
When those soften, that’s when rates drop.
Interest rates don’t fall just because we want them to.
They fall because the economy is slowing—and the Fed is trying to prevent a stall from turning into a crash.
So the next time you think you’ll just wait for rates to drop, ask yourself, if you really want the economic conditions that may cause that to happen?
Because if you’re buying or selling a duplex, those conditions may not help you at all.