The average 30-year fixed mortgage rate dropped closer to 7% this week, declining to 7.02% from 7.09% a week prior, according to Freddie Mac. Rates have declined for two straight weeks after multiple increases in April and early May.

A separate measure tracking daily rate movement also showed rates falling over the past seven days, settling at 6.99% on Thursday, according to Mortgage News Daily.

While the downward trend brought back some affordability, financing costs are still too high for many homebuyers. The overall market remains sluggish, with little sign of a summer turnaround.

"We're in a really difficult situation right now," Jessica Lautz, the National Association of Realtors (NAR) deputy chief economist, told Yahoo Finance. "We want lower mortgage interest rates; we want consumers to be able to afford to purchase a home, especially as a new first-time homebuyer. I am not sure that there is an overnight solution."

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Homebuyers remain on the sidelines

The weekly volume of home-purchase applications decreased 2% this week, according to the Mortgage Bankers Association (MBA). It was 14% lower than the same week a year ago.

"While the downward move in rates benefits prospective homebuyers," said Joel Kan, MBA's deputy chief economist, "mortgage rates are still much higher than they were a year ago.”

Mortgage rates have climbed more than half a point since last May, worsening affordability over the past 12 months. According to the MBA, monthly mortgage payments have increased more than 5% compared to a year ago. The national median payment surpassed $2,200 in March from $2,184 the previous month.

At the current average rate, a homebuyer would pay $1,600 monthly on a $300,000 home with a 20% down payment, according to the Yahoo Finance mortgage calculator.

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

Elevated rates for now

The latest Consumer Price Index (CPI), a broad measure of the cost of everyday goods and services, showed a slight slowdown in price acceleration in April. However, Fed officials have indicated they're looking for sustained signs of progress before lowering benchmark rates, which would, in turn, ease borrowing costs for homebuyers.

Jerome Powell, the Fed's chairman, suggested he would need to see at least three months of easing inflation before cutting. That means the earliest rate drop wouldn't come until fall, and that's only if inflation continues trending in the right direction while the economy remains solid.