Here are 3 signs the housing market may be rebounding

• A housing rebound could be underway, according to three key indicators, Charles Schwab said.
• High mortgage rates have hurt housing demand, sending the market into a deep freeze.

The housing market is starting to pick up from after a slump induced by rapidly rising mortgage rates, and there are three indicators that suggest a market rebound could be underway, according to Charles Schwab.

In a note on Tuesday, the brokerage firm pointed to the housing recession that began in 2021 as mortgage rates moved higher, shutting out both buyers and sellers and sending housing into a deep-freeze marked by slowing sales activity and poor demand.

But key gauges in the market are now starting to rise, Charles Schwab said, pointing to three indicators that could potentially usher in a recovery for housing.

1. Homebuilder sentiment is starting to rebound

The National Association of Home Builders Housing Market Index, a measure of builder sentiment and a key gauge for the housing market, just moved into positive territory for the first time in 11 months. The index clocked in at 55 in June, notching its sixth consecutive increase.

That's a stark contrast from where builder sentiment was mid-2022, when the index posted its largest decline in history barring the start of the pandemic.

"The latest move higher in homebuilder sentiment had healthy breadth given that all of the index's components moved higher, led by the gain in expectations for single-family home sales in this year's second half. The optimism was also widespread throughout the country," Charles Schwab chief investment strategist Liz Ann Sonders said.

2. New home sales are bouncing back

Home sales have also increased, though activity is largely concentrated in new home sales. New home sales hit 763,000 in May, according to a report from the Commerce Department, a 12% increase from April and a 20% increase from May of last year. Existing home sales, meanwhile, have only inched marginally higher after hitting their lowest level in over a decade in February.

That difference is largely due to high mortgage rates, which have discouraged homeowners from listing their properties for sale, as many are looking to hold onto the near-zero interest rates at which they financed their homes years ago. Homebuilders are also offering an array of perks for buyers of new homes, like mortgage rate buydowns and premium finishes, Sonders said.

3. Home prices are falling

Though some measures show a recent uptick in home prices, the six-month average of year-over-over price changes in single-family homes just encroached negative territory for the first time in over a year. That's thanks ot high mortgage rates, which have slugged housing demand and made properties cheaper – something that could incentivize more buyers to come off the sidelines.

But, affordability overall remains poor, Sonders said, posing a hurdle for prospective buyers.

"Unfortunately, the decline in home prices hasn't been enough to counteract other headwinds that are facing would-be buyers. Individuals and/or families in the market for a house are facing some of the worst affordability dynamics in over a decade," she added.

Experts say affordability conditions won't improve until mortgage rates pull back, which is unlikely to happen soon. Mortgage rates are influenced by real interest rates in the economy, which the Fed has hiked aggressively over the past year to control inflation. Markets are pricing in a 74% chance the Fed hikes rates another 25 basis-points at its next policy meeting in July, per the CME FedWatch tool.