U.S. housing payments have dropped to their lowest level in two years, driven by a decline in mortgage rates to near 6%, though the improved affordability has yet to spark a significant rebound in homebuyer activity.
According to a new report from Redfin, the median monthly housing payment fell 4.7% year over year to $2,365 during the four weeks ending Jan. 4. This marks the lowest payment level since the start of 2024. The drop coincides with the average weekly mortgage rate falling to 6.15% last week, according to Freddie Mac, its lowest point in over a year.
Despite these financial incentives, pending home sales declined 6.7% from the previous year, a trend Redfin economists attribute to a holiday lull.
“The housing market is in its holiday hangover season,” said Chen Zhao, Redfin’s head of economic research, in the report. “Prospective homebuyers are focused on getting back into work and school mode rather than hunting for houses — and in some parts of the country, snowy or wet weather is an obstacle.”
Zhao suggests that while the lock-in effect — where homeowners are reluctant to trade their low pandemic-era rates for higher current rates — is a major factor, it isn’t the only one stifling inventory.
“What is holding back supply is mortgage rates (lock-in effect), but also just low demand,” Zhao told Scotsman Guide. “Sellers are not coming to market because it’s a buyer’s market with almost 40% more sellers than buyers nationally. Rates in the 5’s could bring back more demand and more supply, but buyers are also jittery about economic conditions so the effect may not be as large as it would have been a year or two ago.”
The retreat in borrowing costs has been significant. Mortgage rates have fallen from roughly 7% at the beginning of 2025, largely due to signs of weakness in the labor market and the broader economy, according to Redfin. While lower rates have improved purchasing power, they haven’t yet flooded the market with transaction volume. In addition to the drop in pending sales, new listings are down 8.3%, keeping supply tight.
Home prices, meanwhile, continue to inch upward, though the pace of growth has slowed. The median sale price rose 1.1% on the year to $382,370 during the reported period. This represents a deceleration from the roughly 5% annual price growth seen at this time last year.
Nadia Evangelou, principal economist and director of real estate research for the National Association of Realtors (NAR), said in commentary provided to Scotsman Guide that NAR data shows current homebuying affordability at its best level since the end of 2022, due to a combination of easing mortgage payments and growing household incomes.
“Even so,” Evangelou noted, “housing activity remains relatively sluggish because inventory is still especially limited at the price points buyers can afford.”
She added, “Rates holding near 6% this year will help the lock-in effect fade, as the payment gap between existing and new mortgages becomes more predictable and financially manageable, encouraging more homeowners to list and supporting stronger market activity later this year.”
Despite the sluggish headline numbers for sales, real estate professionals on the ground are seeing early indicators of demand for the new year, according to the report. Jo Chavez, a Redfin Premier agent in Kansas City, Mo., noted that house hunting has ticked up in her market.
“My clients want to buy something now, while homes are sitting on the market longer than usual and a fair amount of sellers are dropping their prices,” Chavez was quoted in the report. ”They know that when the spring season starts, competition will pick up — especially if mortgage rates drop more.”
Forward-looking metrics suggest interest is building. Google searches for “homes for sale” rose 30% month over month as of Jan. 4, outpacing the seasonal norm, according to Redfin’s analysis of Google Trends data. However, the Redfin Homebuyer Demand Index — which tracks tours and other services — remained down about 3% from a month earlier.
Redfin economists predict that if the current rate environment holds or improves, more buyers will likely emerge in the coming weeks as the holiday distractions fade.
“If buyers come, sellers are likely to follow,” Zhao added.
