The average rate on a 30-year fixed mortgage fell to 6.99% from 7.03% a week prior, according to Freddie Mac. Rates have hovered around 7% all year.

Rate drops, even marginal ones, are generally welcomed by homebuyers sensitive to rates, yet buying activity has stayed persistently low. Although the inventory of homes for sale is growing and increasing choices for buyers, the pressure from high rates and high home prices is still squeezing affordability.

“We know the reason [for low demand]: record-high home prices hitting affordability, and also mortgage rates [are] much higher compared to a couple of years ago,” said Lawrence Yun, chief economist at the National Association of Realtors (NAR).

Read more: Mortgage rates today, June 6: 30-year rate under 7%

A measure tracking new mortgage applications retreated this week, according to the Mortgage Bankers Association (MBA). Weekly volume declined 4% for purchasing and 7% for refinancing. Buying demand is 13% lower than the same week last year.

“In addition to lower mortgage rates, more housing inventory is desperately needed in markets throughout the country this summer to alleviate these tough affordability conditions,” said Edward Seiler, MBA’s associate vice president.

Households’ buying power decreased in April when rates topped 7%, according to MBA’s data. The national median mortgage payment for new applications climbed to almost $2,260 from $2,200 in March.

An index from the NAR showed affordability declined across all four US regions compared to last year when the average borrowing rate was around mid-6%, according to Freddie Mac.

Read more: Mortgage rates hover around 7% — is this a good time to buy a house?

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Ever since COVID disrupted the housing market, inventory has been sluggish — a factor experts cite as keeping prices high. Now supply has been expanding.

April’s existing home supply is the highest level for that month in four years, according to Redfin’s data. Available units increased by 2% to 1.04 million from 1.02 million in March and were up roughly 11% from 930,000 last April.

The “lock-in effect,” in which many homeowners sitting on low-rate mortgages are choosing to stay put rather than sell, may be wearing off for households needing a change.

“Some people need a different size home because they have additional child[ren] in the family, or some people want to change the school district, or jobs have changed, and they want to change based on their commute pattern,” Yun said. “Even at a higher mortgage rate, life changes.” He added that people are starting to normalize higher rates.

Still, this doesn’t mean supply is back to normal or pre-COVID levels. April’s supply remains 34% below the same month in 2019.

“We still have tight inventory despite the fact that we have this increase from one year ago,” Yun said. “It is just a testimony of how tight the market was in the last year and in the years prior.”

Also read: When will mortgage rates go down? A look at 2024 and 2025.

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

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