This Is the Mortgage Rate Needed to Revitalize the Housing Market

In an expensive housing market, every decline in mortgage rates helps. (Justin Sullivan/Getty Images)

Key Points

• Mortgage rates need to fall to 5.5% or lower to significantly increase home sales, according to a Fannie Mae survey.
• A slim majority of economists, 58%, believe a specific 30-year fixed mortgage rate exists to accelerate home sales.
• The current average 30-year mortgage rate is 6.TK%, nearly one percentage point higher than the 5.5% economists cited.

Mortgage rates have been trending lower, despite bumps in the road. But it would still take a significant drop to ramp up home sales, according to a group of economists.

There might not be a magic number at which mortgage rates spark housing demand. But if there is, it’s a rate of 5.5% or lower, according to the results of a third-quarter Fannie Mae survey released earlier this week. That is still a ways off: the average 30-year mortgage rate this week was 6.34%, according to Freddie Mac, well above the rate most commonly cited by the economists.

Fannie Mae surveyed more than 100 economists, whose backgrounds include research and advisory firms, universities, banks, think tanks, and real estate companies, about their views on home prices and the housing market.

Economists are split on the existence of “a specific and economically plausible 30-year fixed mortgage rate that, if sustained over the next 12 months, would trigger a significant acceleration in U.S. home sales.” Of the 103 respondents, a slim majority, 58%, said such a number exists.

Of those who said there was such a number, the majority—45 out of 60 responses—said that number is 5.5% or lower.

The largest group, 15 out of 60 respondents, pegged the rate at 5.5%. Thirteen respondents, the next largest group, said rates would need to fall to 5%. Seven said the rate would need to fall to 4.5%.

Chen Zhao, Redfin’s head of economics research and one of the survey’s participants, said rates moving below 6% is key. “We’ve bounced around between 6 and 7/7.5% for the last three years,” she noted. “If we got below 6, that would be a psychological turning point for a lot of people.”

In an expensive housing market, every decline in mortgage rates helps. Demand for loans to purchase a home waxes and wanes with rate movements every week, but the general trend in applications has been higher. Mortgage Bankers Association data show seasonally adjusted home purchase loan applications are up 6.6% since rates peaked above 7% in January.

But existing home sales are still on track to end 2025 around the 30-year lows set in 2024 and 2023. “Although purchase applications continue to track above year-ago levels because of lower rates, economic uncertainty and affordability challenges continue to hold back home sales,” Bob Broeksmit, the president and CEO of the Mortgage Bankers Association, said in a statement.

Mortgage rates aren’t the only influential factor for housing demand. Orphe Divounguy, a Zillow senior economist and one of the survey’s respondents, told Barron’s that better employment conditions—not necessarily a dramatic decline in mortgage rates—could improve sales. “A strong labor market coupled with rate stability around 6% should be enough to get sales jumping,” he says.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com