No one ran out to buy a house last week just because rates dropped.  Those smart home buyers were in the market already and were able to take advatage of the drop in rates when they were ready to apply for their mortgage.  But the trend in rates is down and housing is more affordable so more people will start to enter the market which is good for the economy.

As far as the rest of those applications, most were from people who already applied to refinance or buy a home and had locked in a rate of about 6%.  They just went out and made a new application for the same transaction so the net increase in loan applications will be 0.  Many of the applications will also fall apart due to credit or appraisal issues so it remains to be seen how much new business will result from those applications.