Mortgage rates fell to their lowest level in over a year, a welcome development for the housing market.

The average rate on the 30-year fixed-rate mortgage dropped to 6.47% from 6.73% last week, Freddie Mac reported on Thursday. A year ago, the average rate on a 30-year fixed-rate loan was 6.96%.

Separately, the average rate for the 15-year fixed mortgage was 5.63%, down from 5.99% a week prior. The rate on a 15-year loan was 6.34% a year ago.

"Mortgage rates plunged this week ... following the likely overreaction to a less-than-favorable employment report and financial market turbulence for an economy that remains on solid footing," Sam Khater, Freddie Mac's chief economist, said in a press release.

"The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move," the economist added.

Expectations that the Federal Reserve will cut interest rates in September have caused long-term bond yields to fall, which in turn has pushed mortgage rates downward.

The drop in rates has also been a positive development for prospective homebuyers facing affordability issues. Home prices hit a new high in June, but the rate of existing home sales slowed, and there are signs the market is turning back in favor of buyers over sellers.

"Supply and demand dynamics are nearing a balanced market condition," NAR chief economist Lawrence Yun said last month. "We're seeing a slow shift from a seller's market to a buyer's market."

With the housing market entering a slower time of year, however, buyers still remain on the sidelines. Applications for a mortgage to purchase a home increased just 1% last week despite the drop in rates and were 11% lower than a year ago.

"Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications,” Joel Kan, vice president and deputy chief economist of the Mortgage Bankers Association, said in a press release.

"For-sale inventory is beginning to increase gradually in some parts of the country, and homebuyers might be biding their time to enter the market given the prospect of lower rates," Kan said.

Analysts at Goldman Sachs led by Vinay Viswanathan this week revised up expectations for home price appreciation as a result of falling rates. The firm expects home prices to rise 4.5% this year and 4.4% next, up from a prior forecast of 4.2% this year and 3.2% next year.

Meanwhile, more homeowners are taking the opportunity to refinance their loans as rates fall, with applications to refinance a home loan rising 16% last week from the previous week, the Mortgage Bankers Association reported.

Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.

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