The average 30-year fixed mortgage rate fell below 7% for the first time since early April, hitting 6.94% from 7.02% a week prior, according to Freddie Mac. Rates declined for the third consecutive week but have hovered around 7% for more than a month.

A separate measure tracking daily rate movement fluctuated between 7% and 7.20% over the last seven days, settling at 7.17% on Thursday, according to Mortgage News Daily.

The spring homebuying season is usually the most active time for the housing market, but it has been slow this year. Elevated mortgage rates, high home prices, and low inventory are challenging homebuyers. Sales of previously owned homes slid in April as supply remained scarce.

"It's very hard to have incredible volume when the rates are high, and the inventory is relatively low to historic measures," Corey Burr, founder of The Burr Group, a real estate agency in Washington D.C., told Yahoo Finance.

Read more: Mortgage rates today, May 23, 2024: 30-year rates are finally under 7%

Homebuyers remain on sidelines

Despite pent-up demand for homes, buyers are hesitant to enter the market even after this week's rate dip. According to the Mortgage Bankers Association (MBA), the volume of purchase mortgage applications fell by 1% this week from last.

Mortgage applications are 11% lower than the same week a year ago. Refinance activity, however, jumped 7% weekly and 21% from a year ago.

"Purchase activity continues to lag despite this recent decline in rates … as potential buyers still face limited for-sale inventory and high list prices," said Joel Kan, MBA's deputy chief economist.

At the current average rate, a homebuyer would pay almost $1,600 monthly on a $300,000 home with a 20% down payment, according to the Yahoo Finance mortgage calculator.

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

Existing home sales slump

Existing home sales retreated 1.9% month over month in April, according to the National Association of Realtors (NAR), during what’s normally the busiest season.

Blame low inventory. Total housing inventory at the end of April was 1.21 million units, according to the NAR. Despite increasing by 9% monthly and 16% annually, supply stands at just 3.5 months. A six-month supply is considered a balanced market. By comparison, pre-COVID months had around 1.9 million homes for sale.

"We are in a new terrain, new territory as to how the lock-in effect or impact will restrain home sales," said Lawrence Yun, chief economist at the NAR.