When rates fell to around 6.7% (the lowest level in months) in early July, applications for home loans promptly ticked up, according to the Mortgage Bankers Association. But when the average 30-year fixed rate jumped to around 6.8% last week, mortgage activity plummeted 10%.

Lower mortgage rates may motivate more people to buy houses, but it will take a bigger drop in borrowing costs to create more home sellers and lead to lower home prices, economists said.