Washington CNN  —  The standard, 30-year fixed-rate mortgage averaged 6.49% this week, up slightly from the prior week’s level, Freddie Mac reported Thursday. But that’s still well below this year’s peak and the two-decade high last fall — and that appears to be enough to entice homeowners to refinance. Mortgage applications surged 17% last week, driven by homeowners seeking to refinance, up by a staggering 35%, the Mortgage Bankers Association reported Wednesday. Mortgage rates plummeted last week to their lowest level in more than a year, according to figures from mortgage financing giant Freddie Mac. And borrowing costs are expected to fall even further later this year if the Federal Reserve delivers on the interest rate cuts widely expected by economists and investors. Despite declining mortgage rates, America’s housing market remains unaffordable for many Americans, especially those with low incomes living in urban population centers with fast home-price growth, such as San Diego and New York. Home prices have reached record highs multiple times this year, according to data from S&P Global and separately from the National Association of Realtors. A persistent shortage of available housing units in many markets across the country is continuing to boost home prices. There have been some big steps toward a more affordable market this year, with total housing inventory improving every single month so far in 2024, NAR data show. But demand still exceeds supply. A key factor that has eased housing costs in places such as Tampa, Denver, and Minneapolis is a pickup in residential construction. The pace of homebuilding depends on factors such as local zoning laws, land availability and population growth trends. In Tampa, an influx of new residents, coupled with many acres of developable land, have contributed to shelter-cost growth slowing dramatically, tugging inflation overall in the metropolitan area much lower. Persistently elevated housing costs are proving to be an obstacle for the Federal Reserve’s historic, ongoing inflation fight. Inflation is down markedly from the 40-year highs seen in the summer of 2022, reaching a 2.9% annual rate in July, the first time in more than three years that the Consumer Price Index has registered below 3%, according to data released Wednesday. But the Fed’s stated goal is 2%, year over year. Shelter costs made up nearly 90% of the increase in consumer prices seen last month. Excluding shelter, the CPI was up 1.7% for the 12 months ended in July, the Labor Department said.