The MBS team wrote on Tuesday it “does see a path to a 5% mortgage rate” as long as the Fed pulls off two actions: quantitative easing (QE) in mortgage-backed securities and aggressive yield-curve control to the point that 10-year Treasury yields come down to 3.00%-3.25%. The 10-year is pivotal since it serves as a benchmark for 30-year fixed mortgage rates.

Per the Bank of America Research “Situation Room” note released Sept. 16, the baseline expectation is for mortgage rates to end both 2025 and 2026 at 6.25%—a moderate decline from the current national average near 6.35%, which BofA notes was a big improvement from 6.9% recently. That’s based on a 10-year Treasury yield of about 4.00% and about 4.25% by year-end 2026.

While Wall Street is rallying behind the possibility, even a drop to 5% likely won’t bring broad relief to American homebuyers facing the tightest affordability crunch in decades.

Lance Lambert, cofounder and editor-in-chief of ResiClub, told Fortune he sees one of two scenarios playing out. In a hypothetical scenario where the unemployment rate spiked and the economy weakened, he said financial markets “could respond with a flight to safety—driving up demand for Treasuries, which would push bond prices higher and yields (including mortgage rates) lower.”

In the case of a recession were to hit, Lambert said the Fed could respond with emergency cuts to the federal funds rate and, “if the downturn were severe enough, potentially resume purchases of mortgage-backed securities, adding further downward pressure on mortgage rates.”

Why lower rates alone might not move the needle

Housing stocks have surged on anticipation of cuts, BofA noted, citing companies including D.R. Horton, Lennar and PulteGroup, but the analyst note stresses fundamentals have lagged, and real demand is “still sluggish” despite lower rates and increased incentives from builders. Even during previous episodes of falling rates, affordability failed to markedly improve.

Fortune’s Sydney Lake reported in August on Zillow projections it would take mortgage rates dropping to about 4.43% to make the average home affordable for the average buyer, but even a 0% rate wouldn’t help housingaffordability in New York, Los Angeles, San Francisco, San Diego, San Jose and Miami. In July, Lake reported the number of first-time homebuyers had shrunk to just half the historical norm.

The BofA note quantifies the challenge: Through recent cycles, even sharp rate cuts didn’t deliver broad affordability. After the September 2024 rate cut—the most recent analog—mortgage rates briefly dropped but then rebounded, with homebuilder valuations peaking and stocks declining by 20% or more in subsequent months. Rising Treasury yields and persistent supply constraints undermined any potential buyer relief.