Stressed out, would-be American homeowners packed like sardines into cramped apartments with their spouses and children caught a break in last week’s dramatic US Treasury rally.

A big drop in mortgage rates was a foregone conclusion following the largest weekly decline for 10-year US yields since the GFC.

On Wednesday, the MBA said the 30-year fixed plunged 27bps to 6.55%. That’d be the biggest week-to-week drop in years.

As the simple figure shows, rates are now the lowest since May of 2023. (“Buy, buy, buy!”)

Financing costs for wildly overpriced homes have now fallen in seven of the last nine weeks. From the highs near 8% in late October, rates are down 135bps. All despairing laments for America’s housing affordability crisis aside, that’s a material drop and it spells (relative) relief for the above-mentioned sardines.

Contract activity responded. On the MBA’s index, mortgage application volume jumped to the highest level since January. Refis rose for every loan type, MBA VP Joel Kan noted.

And yet, this remains a very challenging market. “Despite the downward movement in rates, purchase activity only saw small gains,” Kan went on, adding that although inventories are improving in some locales, “homebuyers might be biding their time to enter the market given the prospect of lower rates.”

It’s important to acknowledge the proximate cause of the financing relief: US recession worries and the attendant rally across the US Treasury curve.

The figure above’s remarkable. The last time 10-year Treasury yields fell as much as they did last week, Lehman was the top market story.

Invariably, someone will suggest that sharply lower rates (and the prospect of Fed cuts) will drive up prices as demand overwhelms still-scarce supply, particularly in markets were inventories haven’t normalized as much. The UK may offer some guidance in that regard.

Halifax on Wednesday said home prices in the UK returned to growth in July after falling for three straight months. Naturally, the BoE got a mention. The bank cut rates on August 1 for the first time since COVID and more reductions are likely over the balance of the year. As Bloomberg’s Sam Unsted put it Wednesday, “the affordability challenge won’t be solved by one rate cut [but] expectations of more to come will likely stimulate some competition among mortgage lenders and a degree of extra confidence for prospective buyers, albeit likely those who would have taken the plunge anyway.”

That latter point from Unsted — that anyone who comes off the sidelines over the next few months was probably going to buy anyway — is critical. With prices where they are and rates at 6.5% even after falling nearly 1.5ppt from the highs, a lot folks are still nowhere near making the math work. That’s not to suggest additional rates relief won’t juice activity, thereby buoying prices. It very well might. It’s just to say that your average struggling family of renters in America isn’t suddenly not struggling just because financing costs are incrementally less onerous.

That said, the drop in rates matters. And it matters a lot. Redfin did the math. “A homebuyer on a $3,000 monthly budget can afford a $466,000 home with a 6.35% mortgage rate,” Dana Anderson said, in her latest, noting that such a buyer “has gained nearly $30,000 in purchasing power over the last month alone [and] more than $40,000 in purchasing power since April.”

Of course, if any additional rates relief is attributable to job losses and, eventually, a recession, more favorable financing costs will be small comfort on Main Street — or no solace at all.