Sliding mortgage rates are helping to thaw the frozen housing market, Redfin says

• There's finally a glimmer of hope for the housing market, according to Redfin.
• Demand has picked up and mortgage payments are falling, the real-estate brokerage said.
• Activity ground to a halt in 2023 as higher borrowing costs drove away potential homebuyers.

There are signs the frozen housing market is starting to thaw after a year where higher mortgage rates drove potential buyers away, according to Redfin.

The real-estate brokerage said in a report published Thursday that demand has started to pick up again, with its Homebuyer Demand Index jumping 10% over the past month to hit its highest level since August.

That mini-revival has been fueled by the average 30-year fixed-rate mortgage falling from a 23-year high of 7.8% in late October to 6.6%, per data from Freddie Mac. 

That dragged the median mortgage payment for the four weeks to December 31 down by nearly $400 to a 12-month low of $2,361, Redfin said.

Mortgage rates surged in 2023 after nearly a decade of historically low borrowing costs, driven up by the Federal Reserve aggressively hiking interest rates to clamp down on inflation. They edged down slightly over the final two months of the year amid signs that price pressures are cooling, which could set the stage for the central bank to start easing monetary policy.

Still, the flare-up fueled a slowdown in housing market activity, with potential buyers disenchanted by higher rates and would-be sellers opting to stay put to take advantage of being locked in at a lower mortgage rate. Mortgage applications tumbled to a 28-year low in the first half of 2023, while just 1% of Americans sold their homes over the same period.

Mortgage rates still look high compared to historic levels despite the recent pick-up in demand, according to real-estate agents.

"There have been more tours and more offers on my listings since mortgage rates started declining," said Shay Stein, who works for Redfin in Las Vegas. 

"It's all about perspective – two years ago, buyers would have cried about a 6% mortgage rate. Now, they're happy they've dropped down to the mid-6's."