“The bond market is already pricing in rate cuts, so the simple act of the Fed cutting is not necessarily going to have a direct impact on mortgage rates,” Alan Ratner, managing director for housing research firm Zelman & Associates, said in an interview with CNBC yesterday. “Right now, the bond market is already pricing in that outlook, so we’ll see how far rates actually move lower, but our view is it’s going to be a fairly gradual decline over the next several years, as opposed to a step function lower.”

The firm’s chief executive is none other than Ivy Zelman, dubbed “Poison Ivy” for calling the 2008 housing bust, and like her colleagues, she’s shared a less optimistic view of the housing world, particularly when it comes to sales. Last fall she noted that “existing home sales are… probably at the lowest since the [great financial crisis,]” and predicted that they would remain at “extremely depressed levels” through 2025. They are still sluggish, dipping 0.7% in May from the prior month and 2.8% from a year ago; we’ll see if June was any different when the data is released next week.

But inventory is better, a sign that the lock-in effect, which kept sellers on the sidelines, could be easing. Redfin recently reported that the total number of listings is near its highest point in close to four years, at 977,230.

And of course, mortgage rates have dropped. The average 30-year fixed daily mortgage rate is 6.81% and the weekly one is 6.77%. The decline was mostly off the back of a cool inflation report, but there is more to it, and it might not mean they’ll continue to fall. “What the market is showing right now, though, is a lot of optimism that the tamer inflation metrics are going to translate to much lower mortgage rates in the back half of the year and kind of solve that affordability problem,” Ratner said. “And that might be a little bit of an optimistic view.”

If that is the case, it’s not great for anyone who wants to buy a home; they’re dealing with substantially higher home prices and mortgage rates than before the pandemic and incomes that haven’t necessarily kept up. So demand has cooled off, despite people needing homes. 

“We are concerned about the direction of the economy and the consumer,” Ratner said, “and right now, if we can orchestrate a soft landing and lower rate environment, that is the goldilocks scenario for housing, but it’s definitely threading a needle.” Lower mortgage rates wouldn’t matter much if the economy were to slow or fall into a recession, he noted.

Still, we’re not too far off from what Compass’ chief executive, Robert Reffkin, called the magic mortgage rate: anything below 6%, he suggested, would bring buyers back to the market. Lawrence Yun, the National Association of Realtors’ chief economist, also recently said 6% would be the “new normal.” Even with interest rate cuts from the Fed, Yun doesn’t anticipate mortgage rates will fall to 5%, let alone anywhere near the historical lows throughout the pandemic. 

In a rare bit of good news, because mortgage rates are the lowest they’ve been in months, mortgage payments fell from an all-time high earlier this month, and some buyers captured thousands of dollars in purchasing power. We’ll see if the trend continues.