The housing market is showing signs of life after veering into a dead zone late last year, Emily writes.

Why it matters: These green shoots are a good sign for the economy overall and run counter to some of the dire predictions made last fall when mortgage rates were skyrocketing.

What's happening: Homebuyers are making peace with higher mortgage rates, and sellers are making peace with the need to cut prices and make concessions.

• While home prices will likely keep falling, there's reason to think a recovery in sale activity is already underway.

By the numbers: Pending home sales were up 3% in December from the previous month, according to Redfin's proprietary measure. It was the first monthly increase since October 2021. (They're still down 31% since last year.)

• In a report on how the market is turning, Redfin also notes that more folks are taking home tours than during the fall.
• The market's at a turning point, Taylor Marr, Redfin's deputy chief economist, told Axios.

Zoom out: The shift is all about mortgage rates. They went up so fast, and to such a high level, it was hard for buyers to even keep up. When rates started falling back a bit, some of these prospective buyers perked up.

• After peaking at over 7% in November, the average rate on the 30-year mortgage is now 6.13%, per Freddie Mac — the lowest since mid-September.
• Plus: Some buyers are able to get rates that start with a 5 — "an important psychological threshold," Redfin notes.

Between the lines: Homebuyers and sellers adjusted their expectations. What once seemed high now seems like sort of a deal.

When Stefanie McFall, an architect in Atlanta, started looking for homes last March, she was outbid repeatedly. By early fall, she stopped looking.

• Toward the end of 2022, with mortgage rates turning down, she waded back in. Success! She's closing on a five-bedroom house next month with a 5.5% mortgage — the sellers even covered some closing costs. "That would not have happened last spring," she said.
• The house is likely $100,000 less than it would've been last year, she added.

Eric Morales, a tech worker in Alexandria, Va., just bit the bullet on a 6.3% mortgage rate when he bought a three-bedroom house. The rate was "painful," but he said he put on his "macro hat," looked at the last 20 years, and thought, "This isn't so awful."

• He was able to negotiate the price down from around $900,000 to $850,000.

The bottom line: When mortgage rates started climbing last year, reaching levels not seen for decades, the situation looked grim — observers, even those who knew this wasn't going to be like the 2008 crash, braced for the worst.

• But the low inventory of homes for sale, as well as a continuing desire from folks for more space to work remotely, is helping to prop up sale volumes.

✨ Bed Bath & Beyond considers options after JPM default notice. (Axios Pro)

🛢️ Big Oil set to smash annual profit records. (CNBC)

💸 Investors pour money into emerging markets. (FT)

⚠️ Japan, Netherlands to join the U.S. in limiting China’s access to advanced chip machinery. (Bloomberg)

New home sales perked up a bit in December, Matt writes.

Why it matters: It's another sign that after the sharp downturn in real estate activity over the last year, lower rates could reinvigorate the market.

Be smart: That's a big difference from the housing bust of the mid-2000s when mortgage-related losses brought down a boatload of lenders — and recovery took years to achieve.

State of play: Sales of new homes rose 2.3% in December from the month before to an annualized rate of 616,000, according to government data out yesterday.

• It was the third straight monthly increase.

But, but, but: New home sales were still down 27% for the year.

What they're saying: "We do expect new home sales to remain under pressure through the first half of this year, but recent declines in mortgage rates, and incentives offered by homebuilders should prevent too steep of a drop," Nancy Vanden Houten, an economist with Oxford Economics, wrote after yesterday's data drop.

There may be green shoots in housing sale activity, but the builders who watched the market seize up last year responded in an entirely rational way: They slashed investments in new construction, Matt writes.

Driving the news: During the fourth quarter, the U.S. housing economy — a category that includes home and apartment building construction, as well as additions, alterations, renovations and broker commissions on real estate purchases — contracted at an annualized rate of roughly 27%, data in yesterday's GDP report shows.

• That's the quickest slowdown since the big bust around the Great Recession.

Why it matters: The downturn shows the Fed's decision to deliver the sharpest interest rate increases since the early 1980s is having a serious impact on parts of the economy that are most dependent on low rates.

• Yes, but: It would be highly unusual for a collapse like this to continue unabated. As we wrote above, there are some signs that a floor in housing sale activity is coming into view.

What they're saying: "From our perspective, the good news is that demographics remain favorable for housing, so the sector appears well-positioned to help lead the economy out of what we expect will be a brief recession,” economic analysts at Fannie Mae wrote in response to the numbers.

The bottom line: If the rate-related housing freeze starts to thaw, that could turn housing from a hindrance — it clipped about 1.3 percentage points of GDP in Q4 — to a helpful tailwind in the coming year. But that's a big "if."