Lower rates are stoking demand in a still-distorted US housing market.

Mortgage applications rose a third week, the MBA said Wednesday, even as the average 30-year fixed rate ticked higher to 6.78%.

Note that the three basis point week-to-week rate increase was just the second since October. That speaks to the remarkable bond rally set in motion on November 1.

“Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity,” MBA VP Joel Kan said, noting that some buyers are “act[ing] early this season.”

Although the sharp decline in rates over the past two and a half months ostensibly eases the affordability burden for prospective homebuyers, there’s little in the way of relief on the price side of the equation, unless you count a slower pace of appreciation for existing properties.

According to an update on Redfin’s new gauge (essentially a more timely replica of the Case-Shiller methodology), prices rose in December by 0.4% from the previous month. That was the slowest pace since June.

Still, prices increased 6.6% YoY, even as the inventory shortage “eased slightly,” as Redfin senior economist Sheharyar Bokhari put it, before noting that “housing supply remain[s] far below pre-pandemic levels, preventing home prices from dropping as buyers compete for a limited pool of homes.”

On the bright side, Americans priced out of the housing market can look forward to a flood of new apartment supply courtesy of repurposed office space.

As the figure above, which uses data from apartment listing service RentCafe, shows, office-to-apartment conversions have increased fourfold in four years.

Behind that increase is… well, demand for housing, obviously, but also a wall of office mortgage debt coming due in an environment of elevated vacancy rates.

“It’s a testament to how our cities are transforming for a new generation that wants to live where they used to work,” RentCafe said, in an accidentally amusing assessment.