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The housing world is in limbo. Last year, existing home sales<\/a> plummeted to an almost three-decade low because nobody was selling or buying homes. It was a product of the lock-in effect and diminishing demand; the former because mortgage rates<\/a> soared from the pandemic era historical lows, and the latter because home prices skyrocketed along with borrowing costs.\u00a0<\/p>\n There was an expectation that this year would be better, and in some ways it has been. But the housing market is still stuck, and \u201cif mortgage rates stay above 6.5% this year\u2014as we expect\u2014then the chances of an imminent recovery are slim,\u201d Capital Economics\u2019 Thomas Ryan wrote<\/a> earlier this week, referring specifically to mortgage applications.\u00a0<\/p>\n Last month mortgage rates dropped below 7%, which led to an increase in mortgage applications for home purchases, but \u201cthat gain was tiny in the context of the ongoing three-year slump in applications,\u201d the economist went on to say.\u00a0\u00a0<\/p>\n Applications are only 12% higher than the 28-year low reached in October last year, when mortgage rates hit a more than two-decade high. And because lower mortgage rates fueled this latest bout, and they\u2019re trending higher again, it might not last much longer. The average 30-year fixed weekly mortgage rate<\/a> is 6.95%; daily mortgage rates<\/a> are higher, punching in at 7.08%.\u00a0<\/p>\n In yet another sign of weakening demand amid severe unaffordability, pending home sales<\/a> fell 2.1% in May, an all-time low, and on an annual basis, every region across the country registered declines. Redfin recently said<\/a> pending home sales were down 5% during the four weeks ending June 30, their biggest decline in months. Separately, but a sign of lessening demand as well, Redfin\u2019s homebuyer demand index, which measures requests for tours and other homebuying services from Redfin agents, is down 17% year over year.\u00a0<\/p>\n Then there\u2019s existing home sales<\/a>, which dipped 0.7% in May from a month earlier, and 2.8% from the prior year\u2014or new home sales<\/a>, which plummeted 11.3% the same month. Meanwhile, home prices continue to set all-time highs<\/a>. For its part, Capital Economics sees existing home sales remaining \u201cextremely weak over the next few months.\u201d\u00a0<\/p>\n The key to spurring activity in the housing world, at least in the short term, is lower mortgage rates. As Capital Economics has made clear, it doesn\u2019t see that happening unless rates fall below 6.5%. Robert Reffkin, cofounder and chief executive of realty giant Compass<\/a>, recently said<\/a>: \u201cI think 6.5% I\u2019d feel good about\u2026but the magic number is 5.9999.\u201d He continued: \u201cThat\u2019d be marketing magic, and would tell the world that mortgage rates are at a level where they should go and grab a property.\u201d<\/p>\n It could be the magic mortgage rate for would-be sellers, too. Capital Economics puts the average rate on outstanding mortgages at close to 4%, which is why a lot of people don\u2019t want to let theirs go for one that\u2019s 7% or higher. But maybe they\u2019d reconsider if it were closer to 6%, more so, if it were below that. Still, inventory has increased; as of the week ending June 29, new listings were up 10.8% from a year ago, and active inventory, as in all for-sale homes, was up 38.1% from a year earlier, according to<\/a> Realtor.com.<\/p>\n But here\u2019s the thing, some have suggested that once mortgage rates come down, sellers might rush to the market, and home prices will shoot up\u2014not great for anyone who wants to buy a home to live in. Barbara Corcoran, self-made real estate millionaire and Shark Tank<\/em> star, in March said<\/a>: \u201cIf rates go down just another percentage point\u2026prices are going to go through the roof,\u201d and it wasn\u2019t her first time saying as much.\u00a0<\/p>\n On the other hand, Redfin economics research lead, Chen Zhao, recently said<\/a>, \u201ca drop in mortgage rates would bring both buyers and sellers back to the market, which could either accelerate price growth or pull it back depending on who comes back with more force. If sellers come back faster, prices would likely cool, but if buyers come back faster, prices would likely ramp up.\u201d<\/p>\n Either way, it all depends on the Federal Reserve cutting interest rates; the central bank has only penciled in one rate cut<\/a> this year, so we\u2019ll see how much of an effect that\u2019ll have on mortgage rates.\u00a0<\/p>\n<\/div>\n\nSubscribe to the CEO Daily newsletter to get global CEO perspectives on the biggest stories in business. Sign up for free<\/a>.<\/div>\n