The stock market is taking some thumps this month as the market continues to react to the spread of the COVID-19 Delta variant and the Federal Reserve prepares for another upcoming meeting. All three major indices saw decreases last week with tech stocks again leading to the decline. September is notoriously a down month for the S&P, according to the Stock Trader's Almanac, as it averages a 0.4% drop in the month. 

Meanwhile, mortgage rates continue to stay relatively flat. The latest averages from Freddie Mac on a 30-year fixed-rate mortgage came in at 2.86%. Rates have stayed within this range for about two months. Freddie Mac's analysts note, "The holding pattern in rates reflects the markets' view that the prospects for the economy have dimmed somewhat due to the rebound in new COVID cases. While our collective attention is on the pandemic, fundamental changes in the economy are occurring, such as increased migration, the extended continuation of remote work, increased use of automation, and the focus on a more energy-efficient and resilient economy. These factors will likely lead to significant investment and new post-pandemic economic models that will spur economic growth."

The 10-year Treasury note yield, which is typically an indicator for movement within mortgage interest rates, has also remained relatively steady, holding in a range around 1.32%-1.38% for the past few weeks.

The lagging supply of homes

A new report from Realtor.com shows that America is coming up woefully short on the number of homes available. From 2012-2021 more than 12 million households were formed, according to the U.S. Census. Realtor.com's research shows that just 7 million new single-family homes were added in that time. This is just another blow to an already strained inventory that has contributed to skyrocketing home prices. 

Furthermore, home owners feel the pain of cost increases as well. Low interest rates and higher home values have made this environment an excellent opportunity for homeowners with built-up equity to do a cash-out refinance and make some improvements around their homes. However, higher producer prices are starting to trickle into consumer prices and making any home improvement project a little more costly. According to an article on CNBC.com, "Producer prices for painting and coating manufacturing rose 10.6% in August from a year ago, the biggest annual jump since January 2009." Company officials with Sherwin-Williams paints have said in investor calls they "foresee 'pricing actions' to cope with rising input costs."

Generally, it seems that housing activity has slowed despite the low interest rates. The Mortgage Bankers Association shows that for the week ending September 10, refinance activity was 3% lower than the previous week and 3% lower than a year ago. Purchases were up by 8% for the week but still down more than 10% annually. 

Another important move that happened recently was the Federal Housing Finance Agency removing the cap on investor and second-home properties. Earlier this year, the FHFA limited the number of loans that originators could sell to the Agencies. Now that restriction has been lifted which will likely affect interest rates on those loan types.