Home Sales Set to Surge as Mortgage Rates Drop, Economist Says

Mortgage Rates and the Potential for a Home Sales Surge

Mortgage rates are a critical factor influencing the housing market, and recent developments suggest that a significant shift could be on the horizon. According to Lawrence Yun, the chief economist of the National Association of Realtors, home sales could experience a notable increase if mortgage rates fall to around 6%. This level, once considered ambitious, now appears more attainable, especially with improved inflation data and potential rate cuts from the Federal Reserve in the coming years.

Yun predicts that if mortgage rates drop to approximately 6%, home sales in 2026 could rise by between 10% and 15% compared to current levels. He highlights that after three years of historically low sales, this growth is not typical but is expected to happen as conditions improve. The economist shared these insights in a LinkedIn post, emphasizing the long-awaited potential for a rebound in the market.

A Significant Number of Households Could Enter the Market

According to Yun, roughly six million households who were previously priced out of the housing market due to higher interest rates could become eligible to purchase a home if mortgage rates decline to 6%. While not all of these households will necessarily decide to buy a home, he estimates that about 10% of them might take the step, leading to a “conservative” projection of a 10% to 15% increase in sales. This prediction assumes that total sales in 2025 will remain relatively flat compared to the previous year.

The key driver behind this forecast is the potential for a downward trend in mortgage rates. These rates typically follow the 10-year Treasury yield and are influenced by economic and monetary policy expectations. As of now, the 30-year mortgage rate, measured weekly by Freddie Mac, has averaged around 6.8% this year. Existing-home sales are on track to end 2025 near the 30-year lows seen in both 2023 and 2024.

Conditions for Achieving 6% Mortgage Rates

For mortgage rates to reach 6%, several factors need to align. Yun suggests that the Federal Reserve will have to cut interest rates two or three times in 2025, along with continued rate reductions throughout 2026. This will require improved inflation readings, which the central bank closely monitors.

Recent declines in mortgage rates have made the 6% threshold feel more achievable than it did a few months ago. Mortgage News Daily reported that the 30-year fixed rate fell to 6.25% on Monday, marking the lowest level since last autumn. This decrease has started to attract some buyers back into the market, though it may take several months for this renewed interest to translate into measurable sales data.

Early Signs of Market Recovery

Early indicators of future sales, such as Redfin’s pending home sales measure, show contract signings that are roughly flat compared to the same period last year during the four weeks ending September 7. However, there have been localized increases in certain cities, including Cleveland, Chicago, West Palm Beach, Florida, and Pittsburgh, where contract signings rose between 7% and 11%.

With several months remaining in the year, economic data continues to play a crucial role in shaping mortgage rates. Investors should closely monitor the 10-year Treasury yield, as it could fluctuate based on upcoming economic projections or commentary from Federal Reserve Chair Jerome Powell following the Federal Open Market Committee meeting.

The Path Forward

While the path to 6% mortgage rates is not guaranteed, the current trends and predictions suggest that the housing market could see a meaningful recovery. The interplay between inflation, monetary policy, and economic data will be essential in determining whether these forecasts materialize. For now, the focus remains on how these factors will influence the broader market and the potential for increased home sales in the coming years.