What Could Make U.S. Homes More Affordable

The U.S. mortgage and housing market is navigating a period of regulatory shifts and stabilizing affordability despite ongoing supply constraints. Potential updates to the Basel III endgame and G-SIB surcharges are expected to provide banks with excess capital and regulatory clarity, likely prompting a return to the mortgage-backed securities market. This increased demand could tighten spreads and further lower mortgage rates, which have already seen the monthly principal and interest payment on median-priced homes drop by 7% over the past year. While affordability is at its best level since early 2022, a "lock-in effect" persists as current rates remain significantly higher than pandemic-era lows. Consequently, home prices are projected to remain range-bound with modest 2% growth, as any increase in buyer demand is met by a commensurate rise in supply from homeowners finally willing to move.