The frozen U.S. housing market is finally starting to thaw as mortgage rates drop below 7% and more homes change hands

New listings and pending home sales in November climbed to their highest levels in about a year. Getty Images

After struggling with decades-high mortgage rates and a seven-month streak of rising home prices, prospective homebuyers are finally getting some welcome news. And it’s helping to kick-start what had been, until recently, moribund home sales. 

The average 30-year fixed mortgage rate has tumbled to 6.64% after peaking at 8% just two months ago, according to Mortgage News Daily. At the same time, both new listings and pending home sales in November climbed to their highest levels in about a year as buyers and sellers “got tired of waiting on the sidelines and mortgage rates ticked down,” according to a report released Friday by Redfin. New listings increased a modest 1.3% month over month to the highest level since October 2022, while active listings (the total supply of homes for sale) grew 3.9% month over month. 

“Today, we believe the markets are turning the corner,” John Walkup, cofounder of real estate data analytics company UrbanDigs, tells Fortune. 

At this point, however, the evidence is “mostly anecdotal,” he says, with agents reporting an uptick in activity like property visits, submitted offers, and accepted offers. “It usually takes a few weeks for these anecdotal reports to translate into confirmed data,” Walkup adds, meaning we could see even better numbers in the new year.

The frozen housing market

Around the time that mortgage rates hit 8%, existing-home sales plummeted a stunning 15% in September on a year-over-year basis to a seasonally adjusted annual rate of 3.96 million transactions, according to the National Association of Realtors (NAR). That was the lowest figure since 2010, when the world economy and U.S. housing market were emerging from the Great Financial Crisis.

This, in conjunction with rising home prices, surging mortgage rates, and low inventory levels led to a freezing up of homebuying. The fact that mortgage rates are now dropping is starting to “breathe new life into the housing market,” according to a Redfin report released Friday, as reflected by the rise in new and active listings. 

Although many of his clients are still waiting until mortgage rates fall even more, Mike Hardy, a managing partner at Churchill Mortgage, tells Fortune his firm is starting to see more activity and interest. And he expects this trend of declining rates to continue.

“Think of someone on a downward escalator with a yo-yo,” he says. “There will be some volatility, but we expect rates to continue dropping, with more and more folks moving off the sidelines as this trend continues.”

Getting cold feet

While the Redfin report indicates that housing activity is improving, several experts agree it’s still too early to say exactly how the 2024 housing market will turn out. Pending sales hit their highest level in a year in November, but closed sales were down, according to the report. 

About 45,000 home-purchase agreements were canceled in November, which is nearly 17% of homes that went under contract that month. That’s the highest percentage in Redfin records dating back to 2017. 

Although some buyers and sellers have “come to terms with today’s economic uncertainty, that same uncertainty is causing many of them to get cold feet,” according to Redfin. Atlanta, Jacksonville, Cleveland, Fort Lauderdale, and Las Vegas led the nation in that regard in November with more than 20% of pending home sales falling out of contract.  

Whitney Dutton, a residential sales director and advisor with Native Realty, also says both buyers and sellers worry about the potential for rising home prices to offset the advantages of lower mortgage rates. 

“This concern aligns with the report’s observation of more buyers exhibiting cold feet,” he tells Fortune. “As the market continues to evolve, it will be essential to monitor these factors closely to gain a comprehensive understanding of the housing landscape in the coming year.”