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Economy in Brief

The Future Course of Interest Rates
by Tom Moeller June 9, 2004

"Economic developments going forward will determine the level and term structure of interest rates. Federal funds futures prices already reflect expectations of a substantial firming of policy by the Federal Open Market Committee (FOMC). Unlike 1994, there has been an appreciable increase of market rates in anticipation of policy tightening, though history cautions that investors' anticipations of the cumulative magnitude of policy actions and their timing under such circumstances are far from perfect." - Alan Greenspan

The complete text of Chairman Greenspan's June 8th comments on economic developments can be found here.

"Great Expectations: The Role of Beliefs in Economics and Monetary Policy" from Federal Reserve Bank of Philadelphia President Santomero are available here.

Mortgage Applications At Two Year Low
by Tom Moeller June 9, 2004

The index of mortgage applications compiled by the Mortgage Bankers Association dropped 8.9% (-66.2% y/y) last week to the lowest level since June '02. Applications began the month of June 14.2% below the May average which fell 18.9% from April.

Applications to refinance mortgages fell 13.9% last week and started June 25.1% below the May average. Purchase applications fell 6.0% (+3.2% y/y), down 7.0% from May.

During the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing home sales.

The effective interest rate on a conventional 30-Year mortgage was little changed at 6.53%, the average for May. The effective rate on a 15-year mortgage also was little changed at 5.97%, the May average.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.

MBA Mortgage Applications (3/16/90=100) 06/04/04 05/28/04 2003 2002 2001
Total Market Index 568.8 624.6 1,067.9 799.7 625.6
  Purchase 432.2 459.8 395.1 354.7 304.9
  Refinancing 1,363.2 1,583.6 4,981.8 3,388.0 2,491.0
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