Mortgage rates dipped again this week, enticing more rate-sensitive buyers and sellers to return to the housing market.

The average rate for a 30-year loan dropped to 6.60% from 6.66% a week prior, according to Freddie Mac on Thursday. The latest average is the lowest level in seven months, since May 2023, when rates were around 6.57%.

Homebuyers are returning to the market as borrowing costs retreated nearly 120 basis points from their October high when rates nearly broke the 8% mark. Aiding homebuyers is the uptick in listings from homeowners finally selling after a year of gridlock.

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

However, experts said the rise in inventory may still not be enough to supply underlying demand.

"Mortgage rates decreased this week, reaching their lowest level since May of 2023," Sam Khater, Freddie Mac’s chief economist, said in a statement. "This is an encouraging development for the housing market and, in particular, first-time homebuyers who are sensitive to changes in housing affordability. However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale."

Mortgage applications rise

Banks are seeing buyers return as the volume of mortgage applications increased by 10% from a week earlier, according to the Mortgage Bankers Association (MBA) in its weekly survey ending Jan. 12.

On a seasonally adjusted basis, the recent jump included an 11% increase in refinance applications and a 9% climb in purchase applications compared to one week earlier. However, unadjusted seasonal purchase application activity remains 20% lower than the same week one week ago.

"If rates continue to ease, MBA is cautiously optimistic that home purchases will pick up in the coming months," Joel Kan, MBA's vice president and deputy chief economist, said in a statement.

Returning buyers' demand can be partly attributed to homeowners jumping back in too; through 2023, many households stayed in their current residence to avoid selling and buying another home at a significantly higher interest rate.

Read more: How to buy a house: 13 steps to getting the keys to your new home

The share of homeowners with mortgages below 6% decreased to 89% from 93%, a record low in mid-2022, according to data released by Redfin, demonstrating that some homeowners are exchanging their sub-6% rate for something higher.

"Many are selling because a major life event like a divorce has given them no other choice, while others are putting their homes on the market because they want to live in a different house or city," Lily Katz, Redfin's data journalist, wrote.