The housing market is showing signs of life.
Listing activity and homes going under contract ticked up last month nationwide, the latest sign that some of the paralysis brought on by the rapid jump in mortgage rates in recent years is easing.
But there’s a limit to how far the housing market can rebound as homeowners with ultra-low mortgage rates stay put instead of listing their homes and accepting today’s rates of 6% or more, a phenomenon known as the rate lock-in effect.
“Generally, new listings and sales moved closer to pre-pandemic norms in September,” said Kara Ng, a housing economist at Zillow. “That’s still a long way to go in terms of normalizing supply.”
In September, the biggest gains came in pricy locales like Seattle, Los Angeles, and San Jose, Calif.
Those regions have higher proportions of buyers who finance their purchases and jumbo mortgages that hand homebuyers bigger monthly cost savings when mortgage rates fall. In some markets, listing prices have even dropped slightly.
About 950,000 homes were on the market nationwide in September. That number has been steadily rising this year, though it’s still about 22% below 2019 levels.
New listings rose by 25% or more last month compared to a year earlier in the Seattle, Silicon Valley, Denver, and Washington, D.C., areas, according to Realtor.com. Median listing prices in all of those markets top $599,000.
In expensive parts of the country, any mortgage rate savings can help spark buyer interest, said Tim Nguyen, a real estate agent in Santa Clara, Calif., where the median home lists for more than $1.4 million. Average interest rates this year dropped more than a percentage point from as high as 7.22% in May to closer to 6% last month.
“That always drives the market,” Nguyen said. “If you look at a $1 million home, for every percentage point drop it’s a little over $500 of savings every month. That’s significant when you need money to buy groceries.”
Read more: Is this a good time to buy a house?
Pending sales, a measure of homes under contract, were up by double digits in Portland, Ore., Seattle, and several California cities in recent weeks, according to Redfin. But the signs of improvement come off of a very low base — a year ago, homebuying was muted because mortgage rates were close to 8% and measures of homes under contract have remained near record-low levels for years.
Nationwide, Redfin calculated that pending sales rose 3.2% year over year for the four weeks through Oct. 13. It was the biggest jump in more than three years.
Troy Khuu, a San Jose-based agent, said the most desirable homes in his market — ones that are updated, located in strong school districts, and close to tech companies — are still selling above their asking price, sometimes in a matter of days. But buyers aren’t rushing to buy homes that don’t meet all of their specifications, he said.
“It’s no longer the buying frenzy we saw a few years ago,” Khuu said. “It depends on the listing. It depends on the price.”
Homebuying is a heavily seasonal activity. Zillow deemed September as something of a “last call” for the market before sales slow down for the winter. And in recent weeks, mortgage rates have started rising again, and mortgage applications for home purchases have slowed.
“We’re making strides in the right direction, but they’re pretty small steps,” said Danielle Hale, chief economist at Realtor.com. “I think it’s still going to be a while before we stop talking about the mortgage rate lock-in effect.”
Read more: Should you lock in a mortgage rate — and if so, when?
Claire Boston is a senior reporter for Yahoo Finance covering housing, mortgages, and home insurance.
Click here for real estate and housing market news, reports, and analysis to inform your investing decisions
Click here for more information and tools to help you handle your finances