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.

Rates on new 30-year home loans held their ground at a slightly lower level Tuesday, after sinking dramatically Monday. Movement was mixed for other loan types.

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.

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