The US housing industry is experiencing a pivotal moment as mortgage rates continue to trend down, reaching their lowest levels in nearly a year. The average 30 year fixed rate dropped 15 basis points just last week to 6 point 35 percent. Market sentiment is shifting rapidly as the Federal Reserve is widely expected to cut its target rate by 25 basis points this week. This anticipation is already cooling the 10 year Treasury yield, which now sits at around 4 point 03 percent, down from its January peak of 4 point 8 percent. Lower borrowing costs are helping buyers regain some purchasing power, improving affordability by easing monthly payment pressures.

Despite these rate reductions, home price growth has largely flattened across major metro areas. The latest Reuters poll forecasts US average home prices will rise only 2 point 1 percent in 2025 and 1 point 3 percent in 2026, well below the surges of prior years. Inventory is moving up, with existing home listings up more than 15 percent year over year, while the number of homes available for months of supply has risen from 4 to 4 point 6, signaling a slackening market. Many homeowners are holding onto ultra low fixed rates and remain reluctant to sell, keeping overall supply constrained.

Builders are responding with caution, with some offering price cuts and concessions to attract buyers amid still tepid demand. The National Association of Homebuilders notes the industry is at a potential inflection point, where lower rates could spark a rebound in home sales. However, builder sentiment remains subdued, with the rate of new home sales and new construction activity dipping versus last year.

Consumer behavior is responding as buyers sense improved opportunity. Sellers are increasingly open to negotiation, offering incentives and adjusting prices, especially for homes sitting longer on the market. Overpriced listings now linger, while well priced homes move more swiftly. Compared to six months ago, there is more flexibility and leverage for buyers, though broad affordability remains tight.

In summary, the US housing market is transitioning towards a more balanced environment, moving away from the seller dominated conditions of previous years. Continued rate reductions and realistic pricing could further boost activity, but caution persists among both buyers and builders due to remaining affordability and supply challenges.

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