A drop in mortgage rates for the first time in two months has sparked a surge in home purchase applications, breathing new life into the stagnant housing market.

Pending home sales increased in October as house hunters reacted to increased property inventory and confidence over economic conditions.

Any incoming economic data that beat markets' expectations, such as hotter inflation or lower unemployment, reduces the likelihood of cuts and will maintain upward pressure on mortgage rates, said Nicole Rueth, SVP of the Rueth Team Powered by Movement Mortgage.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.86% from 6.90%, with points remaining unchanged