Fed Chair Powell's semiannual testimony before Congress this week was good for mortgage rates. Powell said Fed bond purchases would continue while the economy recovers.

Inflation climbed higher than expected in June. Consumer prices rose 5.4% year over year and saw the biggest monthly gain since August 2008. Inflation is still being seen as transitory.

Jobless claims fell to a pandemic low last week, as the labor market continued to improve. More than half of U.S. governors have announced plans to end enhanced benefits early.

Treasury Secretary Janet Yellen and Fed Chair Jerome Powell are slated to discuss the potential risks of the hot housing market at a meeting with fellow regulators on Friday.

In his testimony before Congress, Powell said demand has pushed housing prices up and, even if mortgage rates rise, continuing demand is expected to keep prices stable.

Last week's purchase mortgage applications rose 8% over the previous week but were 29% lower than last year. 25% of sales were all-cash, up from 15% a year ago.