The housing market is showing early signs of recovery with pending sales of homes climbing for the first time in a year. Pending home sales fell 26% year over year during the four weeks ending January 22 as mortgage rates ticked down. It was the smallest drop in more than three months, according to a new report from Redfin, a technology-powered real estate brokerage.

Pending sales began rising on a month-over-month basis in December as buyers started returning to the market, encouraged by their increased negotiating power and mortgage rates that have declined to 6.1% from their 7% peak. That signals the recent increase in early-stage home buyer demand—mortgage-purchase applications are up 28% since November and Redfin home tour requests are on the rise—is starting to translate into sales.

More demand from buyers and less supply from homeowners is holding prices steady. New listings of homes for sale are down 18% from a year ago, though that’s a smaller drop than recent weeks. The median home-sale price rose 1.1% year over year to $350,000, the biggest increase in over a month. On a local level, the number of metros where prices are falling from a year earlier is shrinking. Home prices declined in 17 of the 50 most populous U.S. metros, with the biggest drops in the Bay Area, down from 20 at the beginning of January.

Redfin agents are reporting that mortgage rates dipping nearly a full percentage point over the last two months is bringing back some sidelined buyers and attracting new ones. They are noticing an increase in interest from clients, including requests for tours, and reporting that some homes that have been on the market for months are finally going under contract.

“Home buyers are starting to feel more confident as mortgage rates tick down closer to 6% than 7% and the overall economy chugs along with surprising resilience, especially in the labor market. Steadily cooling inflation is likely to prevent mortgage rates from jumping back up,” said Chen Zhao, Redfin’s economics research lead. “When rates were seesawing up and down in the fall, many buyers dropped out because they could wake up the day after finding their dream home to a three-digit increase in their potential monthly payment. Now they have a better sense of how far their budget will go in which neighborhoods and which homes they can afford.”

Leading indicators of home buying activity:

• For the week ending January 26, 30-year mortgage rates dropped to 6.13%, hitting their lowest level since September. The daily average was 6.18% on January 25.
• Mortgage purchase applications during the week ending January 20 increased 3% from a week earlier and 28% from their early-November trough, seasonally adjusted. Purchase applications were down 39% from a year earlier.
• The seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home buying services from Redfin agents—was up 6% from a month earlier during the four weeks ending January 22. It was down 29% from a year earlier.
• Google searches for “homes for sale” were up about 40% from their November low during the week ending January 21, but down about 21% from a year earlier.

Key housing market takeaways for 400+ U.S. metro areas:

This data covers the four-week period ending January 22. Redfin’s weekly housing market data goes back through 2015.

• The median home sale price was $349,950, up 1.1% year over year, the biggest gain in over a month.
• The median asking price of newly listed homes was $367,450, up 3.8% year over year.
• Among the 50 most populous metros, sale prices fell in 17, with the biggest drops in San Francisco (-9.3% year over year), Oakland, California (-6.5%), Austin (-6.3%), Detroit (-5.5%) and San Jose, California (-5.4%). Prices increased the most in West Palm Beach, Florida (13.5%), Nashville (9.6%), Milwaukee (9.2%), Indianapolis (7.8%) and Montgomery County, Pennsylvania (7.7%).
• The monthly mortgage payment on the median asking-price home was $2,323 at the current 6.13% mortgage rate. That’s down nearly $200 from the October peak. Monthly mortgage payments are up 29% from a year ago.
• Pending home sales were down 26.2% year over year, the smallest decline in over three months.
• Among the 50 most populous metros, pending sales fell the most in Las Vegas (-63.2% year over year), Phoenix (-56%), Nashville (-52.5%), Jacksonville, Florida (-52.1%) and Austin (-50.7%). Pending sales rose in one metro: Cincinnati (+11.7%).
• New listings of homes for sale fell 18.3% year over year, the smallest decline in nearly three months.
• Active listings (the number of homes listed for sale at any point during the period) were up 23.6% from a year earlier.
• Months of supply—a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales—was 4.4 months, up from four months a week earlier and 2.1 months a year earlier.
• 33% of homes that went under contract had an accepted offer within the first two weeks on the market, up from 29% during the prior four-week period but down from 40% a year earlier.
• Homes that sold were on the market for a median of 47 days. That’s up from 32 days a year earlier and the record low of 18 days set in May.
• 21% of homes sold above their final list price, down from 40% a year earlier and the lowest level since March 2020.
• On average, 5% of homes for sale each week had a price drop, up from 2.1% a year earlier.
• The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, fell to 97.8% from 100.1% a year earlier. That’s the lowest level since March 2020.