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If you\u2019re a baby boomer, you might not consider today\u2019s mortgage rates<\/a> to be high. After all, in the 1980s and 90s, they were much higher. But if you\u2019re of a younger generation and experienced historically low mortgage rates throughout the pandemic, and years before, you\u2019d probably feel otherwise. Well, a new normal is setting in, and it may sound fine or horrendous depending on who you are.\u00a0<\/p>\n \u201cI think the new normal or mortgage rate will be around 6%,\u201d the National Association of Realtors\u2019 chief economist, Lawrence Yun, said in an interview<\/a> with CNBC yesterday. \u201cThe Fed clearly has indicated that they will be cutting interest rates; even with delays, certainly whatever they don\u2019t do this year, will get pushed into next year, but the mortgage rate will not go down to 3%, 4%, or even 5%\u2026so consumers should anticipate that 6% should be normal.\u201d<\/p>\n When inflation reached a four-decade high roughly two years ago, the Federal Reserve raised interest rates multiple times in an attempt to tame it. Inflation has cooled, but proved to be sticker than some may have expected. Either way, with interest rates higher, mortgage rates soared. Consider this, in late December 2020 the average 30-year fixed mortgage rates were in the 2% range, on the higher end, of course; in October last year, they were slightly higher than 8%. Today, daily mortgage rates<\/a> are punching in at 6.99%. The \u201clong term average mortgage rate is around 7%,\u201d Yun said. \u201cThat\u2019s what we are today, but certainly compared to the past decade, when it was averaging 4% and 5%, it is higher.\u201d<\/p>\n But a 6% mortgage rate might not be too bad. Compass\u2019 chief executive, Robert Reffkin, recently said<\/a> the magic mortgage rate number was anything below 6%, and it could be the thing that brings buyers and sellers back. What\u2019s worse is home prices; they\u2019ve risen considerably since the pandemic, too, by more than 40%, according to most estimates.We can\u2019t say the same for incomes. So affordability is shot all around, and in Yun\u2019s view, the Fed needs to cut interest rates, mostly to support supply.\u00a0<\/p>\n \u201cWhat we are seeing is that apartment construction activity has really begun to come down because of higher financing costs\u2014with a lack of supply, it could accelerate future inflation. So in order to assure that inflation is calm, the housing component, we need more construction, we need more supply,\u201d Yun said.\u00a0<\/p>\n He continued: \u201cThe high construction financing cost today is restricting some of the developers, and that could actually lead to housing shortage and push up future inflation.\u201d\u00a0<\/p>\n To be clear, there is already a housing shortage; we\u2019re missing millions of homes. And an analysis<\/a> from Redfin published yesterday found building permits for apartments plummeted almost 30% since the pandemic. Not to mention, to some degree, the supply crisis was exacerbated by the lock-in effect, particularly last year when existing home sales<\/a> fell to their lowest level in almost three decades, because very few people were selling their homes. (Existing home sales<\/a> still aren\u2019t doing great; in May, they fell on a monthly and annual basis). However, inventory has improved this year. For instance, there were close to 37% more homes actively for sale on a typical day in June than a year ago, according to Realtor.com\u2019s monthly trends report<\/a>. That\u2019s good news.\n
\u201cAs we get more inventory, I believe home prices will stop accelerating,\u201d Yun said. \u201cI think there will be slight growth, but not strong growth, and we certainly need more stabilizing home prices.\u201d And we\u2019re already seeing signs that \u201cannual growth showed signs of plateauing,\u201d a recent Redfin analysis<\/a> said, referring to home prices in May. Case-Shiller data<\/a> from April showed price inflation was moving at a slower pace, too.<\/p>\n<\/div>\nSubscribe to the CEO Daily newsletter to get global CEO perspectives on the biggest stories in business. Sign up for free<\/a>.<\/div>\n