According to analysts at Fannie Mae, the average 30-year mortgage rate, which had reached a post-pandemic high of 7.8% last fall, is now expected to end the year below 6%. This projection comes as the housing market begins to rebalance, although home sales rates are anticipated to remain below their long-term trajectory.

Currently, the 30-year mortgage rate stands at about 6.6%. Historically, mortgage rates tend to move in the opposite direction of demand for U.S. government bonds. As demand for bonds increases, mortgage rates decrease. Due to a slowing economy, there has been a rise in the demand for bonds, thereby causing mortgage rates to fall. Specifically, the 10-year Treasury yield has dropped nearly 1% since its peak in October.

The Fannie Mae analysts stated that the outlook for both short-term bond rates and mortgage rates is now lower than their previous forecasts. This is a result of looser financial conditions, indicating less restrictive lending, as well as income growth surpassing the rate of inflation.

Lower rates have already stimulated a surge in refinancings, which is expected to aid in "thawing" the existing home sales market. This market has been impacted by the lock-in effect, where individuals looking to sell their homes cannot do so as purchasing a new home has become too expensive.

However, the analysts caution that the housing market still has a long way to go before stabilizing. They predict that it will take years for a full recovery to the pre-pandemic sales rate. This is primarily due to housing affordability, as it remains extremely strained compared to historical standards relative to household incomes.

Separately, a forecast from CoreLogic, a financial services company, indicates that the average U.S. home price will experience only low-to-mid single-digit growth this year. This suggests a gradual recalibration in a housing market that had been subjected to drastic swings in demand, leading to skyrocketing prices just a few years ago.