Let's dig into the numbers to see how the recent mortgage rate dip has impacted the housing market

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Since peaking this year at 7.52% in April, the average 30-year fixed mortgage rate, as tracked by Mortgage News Daily, has drifted down, with the current average rate at 6.37%.

How has this slight improvement in housing affordability impacted the market?

So far, the impact has been only marginal.

Look no further than the Mortgage Purchase Application Index, which is still hovering around multi-decade lows.

Why hasn’t the recent rate dip spurred more purchase activity? Here are some different takes👇

“It appears a deflationary-like mindset has taken control over some home shoppers. Builders report reasonable traffic levels, but many prospective buyers are saying, ‘I know rates are coming down, so I'll wait,’” Ali Wolf, Zonda’s chief economist, tweeted on Wednesday.

“We may be exhausting the cohort of people who can buy given the affordability constraint from the jump in rates on top of the run-up in prices. Just because many markets withstood some initial period of 7% rates doesn’t mean there are pools of buyers who can continue to buy given the affordability constraint even if they think/expect rates will be lower in a few years. They still have to qualify for the monthly PITI at current rates,” Nick Timiraos, chief economics correspondent of the Wall Street Journal, tweeted on Wednesday.

My take?

Barring a significant improvement in housing affordability, the recovery in existing home sales is likely to be slow—a grind. High switching costs continue to suppress resale turnover, as elevated mortgage rates compared to pre-2022 levels have made the prospect of trading a lower monthly payment/rate for a substantially higher one a daunting financial challenge.

Over time, if housing affordability improves—whether through lower mortgage rates, lower prices, or higher incomes—it’ll bring more sellers and buyers into the market, and push up existing home sales.

And as time goes on, life events such as expanding families or other significant changes can act as catalysts in reducing so-called switching costs. For example, a growing family may find the need for a larger home more pressing, making the financial and emotional aspects of moving more palatable. These life events can gradually alleviate switching costs in borrowers' minds.

Refi is one area of the market that has gained some recent traction, as borrowers who secured 7.0% or 8.0% rates over the past 18 months are taking advantage of the recent rate dip to get some relief.

While this isn’t a refi boom—at least not yet—it is a bounce off the multi-decade lows hit during the mortgage rate shock.

How low would the average 30-year fixed mortgage rate need to get to really juice refi?

“For a real refi boom? Demand and more supply for purchases? 5.5% or below,” Gordon Miller, owner of Miller Lending, a mortgage lender based in Cary, N.C., tells ResiClub.

On Tuesday, we learned that U.S. home prices, as tracked by the Case-Shiller National Home Price Index, rose +0.5% between the May 2024 reading and the June 2024 reading.

Year-over-year: +5.4% 

Year-to-date: +4.6%

Since June 2022: +5.5% 

Since March 2020: +51.1%

We’re at the tail end of the seasonally stronger period for home price reporting and will soon enter the seasonally softer period.

Notice I call it the “reporting window.” That’s because the real world has already made the transition. Home price indices lag.