Pending home sales improved in January as more buyers returned to the market at the start of the year. 

According to a new Redfin report, January pending home sales had their smallest year-over-year drop in more than three months – falling 26.2% in the four weeks ended Jan. 22. This comes just one month after pending sales started to rise month over month in December. 

The report found homebuyer demand is on the rise, as mortgage applications rose 28% since November and more prospective buyers are scheduling home tours. During the week ended Jan. 21, Redfin found Google searches for “homes for sale” were up 40% from their November low but down 21% from last year. 

However, that doesn’t mean there’s a lot of change in home prices. While demand is growing, inventory is still an issue. New-home listings fell 18% from last year, and while Redfin notes that’s a smaller drop than they’ve seen in recent weeks, prices are still holding steady. 

Redfin economics research lead Chen Zhao says homebuyers are feeling more confident as mortgage rates drop closer to 6% and the economy shows surprising resilience. 

“Steadily cooling inflation is likely to prevent mortgage rates from jumping back up,” Zhao said. “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.”

Thirty-year mortgage rates fell to 6.13% for the week ending Jan. 26, the lowest they’ve been since September. The daily average was 6.18% on Jan. 25.

The drop in mortgage rates brought more buyers to the market, as mortgage applications rose 3% from the previous week and were up 28% from early November. 

The lower rate brought the average monthly mortgage payment on a median-priced home to $2,323, down almost $200 from October’s peak. Year over year, mortgage payments were up 29%.

In the four weeks ended Jan. 22, active listings rose 23.6% from last year. Meanwhile, new listings fell 18.3% from last year, the smallest decline in three months.

The median asking price of a home rose 3.8% from 2022 to $367,450. Meanwhile, the median sale price had its biggest gain in over a month, increasing 1.1% to $349,950.