Mortgage applications inched up last week for the first time since June 24. Total mortgage demand increased 1.2% as the average 30-year fixed mortgage rate made the largest weekly drop since 2020.

Applications to refinance a home rose 2%, according to the Mortgage Bankers Association, but the annual drop was still huge, down 82% since last year.

Applications to purchase a home increased 1% and were down 16% from one year ago.

The slight increases came as mortgage rates dropped 0.31 percentage point from 5.74% to 5.43% following the Federal Reserve announcement of its latest rate hike and the GDP report, which showed the U.S. economy contracted for the second straight quarter.

“Mortgage rates declined last week following another announcement of tighter monetary policy from the Federal Reserve, with the likelihood of more rate hikes to come. Treasury yields dropped as a result, as investors continue to expect a weaker macroeconomic environment in the coming months,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.  

Kan added that there are some signs of optimism in the housing market. “Lower mortgage rates, combined with signs of more inventory coming to the market, could lead to a rebound in purchase activity,” he said.

The National Association of Home Builders also sees some signs of improvement. According to the NAHB’s Housing Trends Report, after declining for five straight quarters, the share of buyers seeing more homes available for sale rose to 28% in Q2.

NAHB’s expectations of housing availability also improved. For the first time since 2020, the share of prospective buyers who expect the home search to get easier in the months ahead rose, increasing to 22%. Housing availability expectations rose in all regions except the Midwest.