L
ast year's housing market was the most unaffordable since the mid-1980s, with near-record prices and elevated mortgage rates keeping many buyers out. However, leading real estate analyst Ivy Zelman sees a silver lining for buyers: homebuilders are stepping in to help. As mortgage rates spiked to historic highs in response to inflation, buying an entry-level house became the hardest it had been since 1984.

    The challenging conditions have made it impractical or impossible for millions of potential buyers to move, leading to a drying up of home sales. But buyers now have an unlikely ally: homebuilders are offering special deals that bring mortgage rates down from around 7% to 4% or 5%. These buydowns can make the difference between closing a deal and continuing to rent.

    Zelman estimates that buydowns are now in place on most entry-level home sales. While builders would rather not eat into their profit margins, they're using buydowns as a necessary tool to drive sales growth. Business Insider analysis found that top homebuilders' operating margins have fallen or flatlined since early 2022.

    For builders, it's even worse to be stuck with unsold homes than to offer buydowns. Zelman said the CEO of a major homebuilder told her that subsidizing mortgage rates had become "a cost of doing business" to keep sales volume up. Without incentives like buydowns, the market would be "very ugly."

    Buydowns are a rare silver lining for buyers and a workable solution for builders, especially if borrowing costs don't budge anytime soon. While it's fair to wonder whether buydowns will remain in place when mortgage rates fall, Zelman suspects they have long-term staying power. Builders see them as a competitive advantage against the existing market, which offers stiff competition on pricing.

    Zelman's firm expects new home prices to tick up by just 1% this year before a 2% jump in 2026, compared to increases of about 3% for existing homes. This relatively soft growth should help spark sales growth of 5%.