Mortgage rates dip, but demand still weak 

Despite all the uncertainty around tariffs and federal job cuts, mortgage rates have remained stable in the first several weeks of the new year.

The 30-year fixed-rate mortgage averaged 6.89% this week, according to the latest Freddie Mac survey — that's down from 6.95% last week, and marks the third straight week of slow-but-steady declines. Rates continue to hang around the 7% level, however, following a series of increases starting in mid-December. A year ago, the average rate was 6.64%.

The relative stability coincides with recent data suggesting the economy remains on firm footing, said Sam Khater, Freddie Mac's chief economist. 

Cash buyers 'even more advantaged'

With rates still elevated, more cash buyers may start entering the market, said Lisa Sturtevant, chief economist at Bright MLS. She noted that in the Bright MLS area — which extends from New Jersey to central Virginia — more than one in five transactions in the fourth quarter of 2024 were all-cash.

"With rates remaining near 7% for now, buyers who can come to the table with cash are going to be even more advantaged, which means that the share of cash buyers in the market could increase during the first quarter of the year," Sturtevant said.

Refinance applications up, purchase apps down

Mortgage applications were up 2.2% week-over-week, according to the latest data from the Mortgage Bankers Association, but the increase was driven by homeowners looking to refinance.

Refinance applications jumped 12% at the end of January compared to the week before, but purchase activity declined 4%, said Joel Kan, MBA's deputy chief economist.

Fewer homeowners locked in by low rates

After more than two years of elevated rates, there are signs that the lock-in effect caused by the pandemic era's ultra-low interest rates is easing up. Redfin estimates that 17% of homeowners with mortgages now have a rate of at least 6%, the highest share since 2016.

According to the Redfin report, the increase is due to a combination of life events that have forced people to sell and a growing acceptance of higher rates as a new normal. 

Additionally, people who bought a home during the pandemic are more willing to sell because they have built up significant equity, making a higher rate more tolerable — especially if they're downsizing, the report noted.

New listings are on the rise — and so are price cuts

Those trends could be helping boost inventory ahead of the spring homebuying season. A separate Redfin report found that new listings rose 7.9% year-over-year during the four weeks ending Feb. 2. Redfin now estimates supply to be at five months, approaching levels seen in February 2019.

"Listings are picking up as we inch toward spring," said Joe Paolazzi, a Redfin Premier agent in Pittsburgh. Homeowners, like buyers, are realizing that rates aren't likely to fall significantly, and they've also noticed "that even though there are fewer buyers in the market than usual, the buyers who are on the hunt are serious and willing to pay a fair price."

Mike Simonsen, president of Altos Research, says weak demand is starting to impact home prices in some areas of the country. Price reductions kicked up this past week, something that hasn't happened during the month of January for the past 10 years.

Simonsen expects that trend is likely to continue until mortgage rates come down further, but it's not a cause for concern.

"These are not catastrophic signs. It's not like there's panic out there," Simonsen said in his weekly update video. "If inventory were jumping each week, that would be notable. But it's not. The supply numbers are growing just a little bit."