New regulations like the Basel Endgame are expected to give banks more capital and regulatory clarity. This will encourage them, as the largest mortgage investors, to resume buying mortgages, tightening the 'spread' component of mortgage rates and thus lowering borrowing costs.
Despite housing affordability reaching its best level since Q2 2022, buyer demand has not yet responded. This is a normal market behavior, as historical data shows it takes about a year for improvements in affordability to translate into a noticeable increase in home purchase transactions.
While lower mortgage rates typically boost buyer demand, they also reduce the 'lock-in effect' for existing homeowners. This brings more supply to the market, which will likely offset the increased demand and keep home price growth minimal and 'range-bound'.