The mortgage lock-in effect that plunged the 2023 housing market into a deep freeze has finally started to thaw, according to a new Redfin market report published on Thursday.

Mortgage rates dropped to the mid-6 percent range at the beginning of the month, a 25 percent change from October’s 20-year high of roughly 8 percent. The downshift in rates has resulted in a $325 per month decline (-12 percent) in the median U.S. housing payment — enough of a savings to get buyers and sellers back into the market.

“Redfin agents report that as the new year kicks off, more sellers are listing and more buyers are going on tours and applying for mortgages,” the report read. “Buyers are motivated by lower mortgage payments … and sellers are motivated by increased demand and the lock-in effect easing.”

The daily average 30-year fixed mortgage rate has been on the uptick over the past week, rising from 6.72 percent to 6.78 percent as of Jan. 10. Meanwhile, the weekly average 30-year fixed mortgage rate clocked in at 6.62 percent, the lowest level since May 2023. Leveling rates have bolstered purchase applications on a weekly (+6 percent) and monthly (+3 percent); however, applications are still down on an annual basis (-16 percent).

Redfin said the boost in mortgage purchase applications coincides with an improvement in its Homebuyer Demand Index, a seasonally adjusted measure of requests for tours and other buying services from Redfin’s agents. The index is up 5 percent from December, as buyers and sellers get a headstart on their 2024 real estate plans.

New listings increased 9 percent year-over-year for the four weeks ending on Jan. 7. Active listings declined 2.9 percent annually to 775,467 and the months of supply reached 4.2 months, which Redfin said classifies as a balanced market.

The median days on market fell from 44 to 42 days and the share of homes sold within two weeks increased from 24 to 24.9 percent during the same period — signaling renewed hunger from homebuyers.

“More buyers are out there touring this week; they feel optimistic now that rates have come down a bit,” Phoenix Redfin Premier agent Heather Mahmood-Corley said in a prepared statement. “I’m advising house hunters to start making offers now because the market feels pretty balanced.”

Mahmood-Corley isn’t the only agent advising their homebuyers to come with their best offers — the number of homes sold above list price increased 7.72 percent year-over-year to 23.7 percent. The average list-to-sale ratio also increased, jumping 0.4 points to 98.3 percent.

“Interest rates are lower and there are more listings, but there’s not much competition yet,” she said. “With activity picking up, I think prices will rise and bidding wars will become more common.”

Austin (-3.3 percent), Fort Worth (-3.2 percent), San Francisco (-2.5 percent), San Antonio (-0.9 percent) and Philadelphia (-0.1 percent) were the only metros to experience a decline in median sales prices.

Pending sales increased in 14 metros, with Milwaukee (12.3 percent), Austin (10.6 percent), Dallas (10.2 percent), San Jose (10 percent) and Cleveland (7.5 percent) leading the way.

Meanwhile, new listings declined in 10 metros, with Atlanta (-12.2 percent), San Francisco (-11.2 percent), Indianapolis (-7.7 percent), Providence (-6.5 percent) and Newark (-6.5 percent) experiencing the biggest dips in seller activity.

Source: Declining Mortgage Rates Bring New-Year Market Thaw Inman (January 11, 2024) Marian McPherson