An economist we spoke with on Thursday talked about the “trifecta” of bad news on the housing market that came out this week: Sales of new homes fell 4.7% in April from March. Sales of existing homes dropped by about 2%. And in May, homebuilder sentiment fell sharply into officially “bummed out” territory. It was the first monthly decline in the National Association of Home Builders confidence index since last November. 

We can easily point to a culprit for all of this: high mortgage rates. According to Freddie Mac, the average interest on a 30-year fixed-rate home loan popped back up above 7% in mid-April — where it hadn’t been since late last year. Rates have fallen just a tad since then.

Mortgage rates sitting above 7% have frozen the housing market. Prospective buyers can’t afford the high monthly payments, and potential sellers don’t want to move and give up their low mortgage rates.

“The housing market is a mess right now,” said economist Robert Frick at Navy Federal Credit Union. “There are all kinds of Catch-22s and things locked up — one piece can’t move because another one can’t.”

Frick expects the Federal Reserve to cut rates — eventually. “Hopefully later this year. But they need to come down a lot,” he said.

How low do they need to go to unfreeze the market? 

“Probably to around 5%,” Frick said. “At 5%, people with 3% mortgages go, ‘Yeah, OK. I’ll list my house now.’ People will be paying hundreds of dollars less in their monthly mortgage payments, so they’ll be more willing to buy.”

It’ll be a slow thaw at best. Since the Great Recession, there’s been a slump in building, and Frick said the country is still 4.5 million homes short of what the market needs. 

Danushka Nanayakkara at the National Association of Home Builders said high home prices will also hinder a full rebound. 

“The majority are between $300,000 to $500,000, which is by historic standards, it’s very expensive,” Nanayakkara said.

Of course, some folks looking for an affordable first home will just figure out a way to make it work. 

“I wasn’t very well-versed in real estate,” said Anthony Darmiento. He and his wife just bought a midcentury modern home on the outskirts of Portland, Oregon. 

The decor wasn’t exactly what they wanted, but they were able to get their monthly payment down with some creative accounting. “One thing that was new to me was that you can buy down the interest rate. We were able to bring it down from 7.75% to 5.75%,” Darmiento said.

Even with that, he said, “we were looking for any house that seemed Airbnb-able or rentable.”

They plan to rent out the downstairs to earn extra money to pay their mortgage.