House hunters are seeing a bright spot in the market this month, as mortgage rates have dropped slightly and the amount of homes available for purchase has increased.
Housing inventory, the industry's term for the number of homes for sale, grew 29% compared to a year ago, according to data from Realtor.com. Meanwhile, the average rate for a 30-year fixed mortgage fell to 5.3% this week, according to Freddie Mac, from 5.8% two weeks ago.
The rate drop is positive news for homebuyers, but it's still a far cry from the below 3% figures buyers saw last July, said Realtor.com chief economist Danielle Hale.
"Even though we saw seen rates pull back a little bit this week and last week, they're still much higher than they were this time one year ago," she told CBS News.
Hale said homebuyers shouldn't expect mortgage rates to fall back to 3% any time soon. The Federal Reserve is trying to fend off inflation by raising interest rates and that move will keep mortgage rates high for the foreseeable future, she said.
Homebuyers have faced a blazing-hot housing market this year marked by home prices in the $500,000 range, skyrocketing mortgage rates and stiff competition from high-income buyers. The rising cost of buying a house pushed the dream of homeownership beyond the grasp of some middle-class Americans, many of whom decided to stop shopping and return to renting.
"The market is getting much more challenging for home shoppers — we're seeing some of them just quit and put their plans on hold," Hale said.
Indeed, the number of mortgage applications fell nearly 5.5% last week, according to data from the Mortgage Bankers Association. Mortgage rates have been and are still relatively high this year and that's "why applications for home purchases and refinances remain depressed," Joel Kan, the association's associate vice president, said in a statement Wednesday.
Not everyone bailed on the housing market, economists said. Some opted to stick it out and keep searching for a deal. Buyers who are still in the market should focus on getting a home where the loan payment and interest rates sit below their budget, said Hale. "I call it rate-proofing your budget," she said.