For the seventh-straight week the average interest rate on a 30-year fixed-rate mortgage has come in below 3%, according to Freddie Mac. The latest report from Freddie shows the average dropping to 2.77% from 2.80% the week prior. This matches what was reported at the beginning of 2021. Typically, this type of drop would spur a refinance boom but the latest data shows that wasn't the case quite yet.

Weekly data from the Mortgage Bankers Association shows that mortgage application volume declined by 1.7% over the last week of July with refinances declining by 2% week-over-week. Annually, the MBA shows refinances were 3% lower than a year ago when Freddie Mac shows the average rate was 2.88%. 

As a reminder, on August 1, the Federal Housing Finance Authority rescinded the Adverse Market Refinance Fee it had started assessing in late 2020. That means lenders are no longer on the hook to pay a 50-basis point fee when delivering these loans to Fannie Mae and Freddie Mac. That could help boost refinances for lenders as this makes it less expensive to produce the loan.

What's keeping rates low?

Rates continue to stay at these historic lows due primarily to the Federal Reserve's decision to continue its $120 billion worth of bond purchases each month. Those purchases have buoyed the housing market since the onset of COVID by creating a guaranteed investor market. 

That could change in the next few months if the labor market shows strong signs of improvement. Central Bank governor Christopher Waller recently said that if the August and September jobs reports are both strong, it's possible the bond purchase taper could begin in October.

July's non-farm payroll jobs report from the Department of Labor was a step in that direction. The report shows the economy added 943,000 jobs in July, well above the already high expectation of 845,000. Also, the unemployment rate dropped to 5.4%. Reports for May and June were also revised up by 31,000 and 88,000, respectively. 

The private sector fared much worse, according to ADP's payroll report. Private businesses added just 330,000 jobs in July compared to estimates of 653,000 jobs added. That is the smallest gain for the private market since February 2020. 

The issue of home prices and inventory

While low interest rates would usually signal a huge wave of mortgage purchase activity, we've seen that stymied over the last few months due to a lack of inventory and skyrocketing home prices. The latest S&P CoreLogic Case Shiller National Home Price Index showed an eye-popping 16.6% annual increase in home prices in May. June data from the National Association of Realtors reflects that increase, showing a 146% annual increase in sales of homes priced above $1 million. The NAR also reported a median home price of $363,000—a 23% increase from June 2020. "That marks 112 straight months of year-over-year gains," reports the NAR.

On top of that, inventory remains a huge hurdle for homebuyers. Month-over-month, inventory went up by about 3% in June according to the NAR, but, "Unsold inventory sits at a 2.6-month supply at the current sales pace, modestly up from May's 2.5-month supply but down from 3.9 months in June 2020."

The hope was new construction would help replenish the housing market but the latest data from the Commerce Department suggests construction might be slowing. Permits in June fell to their lowest level since October 2020 as builders are facing issues of prices for steel, concrete and other supplies.