'On the right path': Housing market offers glimmers of hope, some analysts say
A thaw in the housing market may deliver relief for homebuyers left out in the cold over recent years, analysts told ABC News.
After the pandemic, a rapid rise in home prices coincided with stubbornly high mortgage rates, shutting out potential buyers.
Glimmers of hope have started to emerge, however. Mortgage rates are falling, wages are rising faster than home prices and homebuyers are scooping up their biggest discounts in years, some analysts told ABC News.
"Housing is becoming more affordable. Are we there yet? No. But we're on the right path," Ken Johnson, a real estate economist at the University of Mississippi, told ABC News.
The average interest rate on a 30-year fixed mortgage stands at 6.09%, Freddie Mac data last week showed. A little more than a year ago, the average 30-year fixed mortgage rate exceeded 7%.
Each percentage point decrease in a mortgage rate can save thousands or tens of thousands in additional costs each year, depending on the price of the house, according to Rocket Mortgage.
"It looks like mortgage rates are settling down," Lawrence Yun, chief economist at the National Association of Realtors (NAR), told ABC News. "That's great news for homebuyers."
A measure of housing affordability issued by NAR has improved for seven consecutive months, rising to its highest level since 2022, Yun said. The surge in home prices has slowed while income gains have accelerated, bolstering the purchasing power of homebuyers, some analysts noted.
"Incomes are growing faster than home prices," Johnson said.
Despite these positive signals, the housing market still faces significant challenges, some analysts said, pointing to a fundamental shortage of housing supply.
The housing market is suffering from a phenomenon known as the "lock-in" effect, Lu Liu, a professor at the Wharton School at the University of Pennsylvania, told ABC News.
While mortgage rates have fallen, they remain well above the rates enjoyed by most current homeowners, who may be reluctant to put their homes on the market and risk a much higher rate on their next mortgage.
"The degree of lock-in is unprecedented in the U.S.," Liu said, noting the prevalence of 30-year mortgages and the inability for homeowners to transfer a current loan to a new property.
Existing home sales declined by 8.4% in January from the previous month, the NAR said in a report last week.
Alongside the lock-in effect, construction has failed to make up for a years-long shortage of new homes, exacerbating the shortfall.
While the lock-in effect remains a significant factor, its impact may be waning as some home owners encounter major life events or other circumstances that force them to move, even if it entails taking on a loan with a higher mortgage rate, Liu said.
"If they really do have to move, maybe they would be more willing to yield to this economic logic," Liu added.
If homebuyers do move forward with a purchase, they may benefit from major price discounts, Redfin found this month. In 2025, homebuyers received average discounts that amount to 7.9% off a home's initial listing price, Redfin said, making it the largest average discount in 13 years.
"Homebuyers are more likely to get discounts than they were in recent years because it's the strongest buyer's market in recent history," said Lily Katz and Asad Khan, co-authors of the Redfin report.
Positive signals for homebuyers will likely continue as elevated mortgage rates weigh on consumer demand, slowing the rise in prices, some analysts said. But, they cautioned, an unexpected spike in mortgage rates could hike borrowing costs for homebuyers or an economic slowdown may crimp purchasing power.
"There is uncertainty over the outlook for interest rates," Liu said. "So the overall price outlook is uncertain."
