A rapid increase in demand
A recent Redfin report noted that there are almost 500,000 more home sellers than home buyers right now. While Yun believes the supply of houses will continue to increase steadily, he thinks demand could surge greatly with even a slight decline in the rate, just based on more people being able to qualify for a loan at a lower rate.
“It will be a gradual increase in supply, but the demand can quickly change,” Yun said. “Right now, the demand is restrained because of the high mortgage rate, but if the mortgage rate goes down, then you will have an increase in the number of qualifying borrowers. People who cannot qualify at a 7% mortgage rate, but could easily qualify at a 6% or 6.5% mortgage rate.”
Yun believes a rate decline could quickly turn the perceived home surplus into a home shortage.
Lawrence Yun, chief economist at National Association of Realtors (NAR), believes the Federal Reserve is too focused on tariffs and not enough on other disinflationary factors. He urges the Fed to widen its view for earlier rate cuts. https://t.co/IcIyoRhjqA
— Mortgage Professional America Magazine (@MPAMagazineUS) June 17, 2025
“You would have this increase in potential buyers suddenly changing due to changes in the mortgage rate,” he said. “The surplus situation can quickly change on a dime into a shortage condition, depending upon how the demand changes. Because supply is relatively fixed, not changing quickly, while the demand could quickly go up or down.”
However, a decline in rates could bring more sellers into the market. Economists have talked about the lock-in effect keeping sellers out of the market. Many people with low-interest-rate mortgages might be more inclined to make a move if rates drop closer to 6%.