“I think the new normal for mortgage rates will be around 6%,” the National Association of Realtors’ chief economist, Lawrence Yun, said in an interview with CNBC yesterday. “The Fed clearly has indicated that they will be cutting interest rates; even with delays, certainly whatever they don’t do this year, will get pushed into next year, but the mortgage rate will not go down to 3%, 4%, or even 5%…so consumers should anticipate that 6% should be normal.”

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, 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 are punching in at 6.99%. The “long-term average mortgage rate is around 7%,” Yun said. “That’s what we are today, but certainly compared to the past decade, when it was averaging 4% and 5%, it is higher.”

But a 6% mortgage rate might not be too bad. Compass’s chief executive, Robert Reffkin, recently said the magic mortgage rate number was anything below 6%, and it could be what brings buyers and sellers back. What’s worse is home prices; they’ve risen considerably since the pandemic, too, by more than 40%, according to most estimates. We can’t say the same for incomes. So affordability is shot all around, and in Yun’s view, the Fed needs to cut interest rates, mostly to support supply. 

“What we are seeing is that apartment construction activity has really begun to come down because of higher financing costs—with 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,” Yun said. 

He continued: “The high construction financing cost today is restricting some of the developers, and that could actually lead to housing shortage and push up future inflation.” 

To be clear, there is already a housing shortage; we’re missing millions of homes. And an analysis from Redfin published yesterday found that 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 fell to their lowest level in almost three decades, because very few people were selling their homes. (Existing home sales still aren’t 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’s monthly trends report. That’s good news.

“As we get more inventory, I believe home prices will stop accelerating,” Yun said. “I think there will be slight growth, but not strong growth, and we certainly need more stabilizing home prices.” And we’re already seeing signs that “annual growth showed signs of plateauing,” a recent Redfin analysis said, referring to home prices in May. Case-Shiller data from April showed price inflation was moving at a slower pace too.