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Economy in Brief

Mortgage Applications Continued Lower
by Tom Moeller October 12, 2005

The total number of mortgage applications fell last week by 2.6%. It was the third consecutive weekly decline, according to the Mortgage Bankers Association, and lowered applications 21.7% versus the weekly peak in early June.

Lower mortgage applications to refinance led the decline with a 4.9% w/w drop that pulled refi's nearly one third below peak.

Purchase applications also fell. The 0.9% decline was the fourth in as many weeks and purchase applications are 11.3% below the June peak. During the last ten years there has been a 49% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

The effective interest rate on a conventional 30-year mortgage rose to 6.22% from 6.18% the week prior and is up from 6.03% averaged in September. The low for 30 year financing was 5.71% in late June. The effective rate on a 15-year mortgage rose to 5.85% and increased from the low of 5.33%. The interest rate on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities.

Higher short term interest have reduced borrowers' usage of adjustable rate mortgages (ARMs), though the decline has not been precipitous. The more than 200 basis point increase in ARM contract rates since the 2003-04 low has caused ARMs' percentage of all loans to fall to a still-high 43.8% from the peak near 50%.

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.

Globalization, Inflation, and Monetary Policy, remarks made yesterday by Federal Reserve Board Governor Donald L. Kohn, are available here.

The meeting Minutes of the Federal Open Market Committee held September 20, 2005 can be found here.

MBA Mortgage Applications (3/16/90=100) 10/07/05 09/30/05 Y/Y 2004 2003 2002
Total Market Index 694.8 713.5 5.6% 735.1 1,067.9 799.7
  Purchase 469.5 473.8 7.6% 454.5 395.1 354.7
  Refinancing 2,004.9 2,107.4s 2.9% 2,366.8 4,981.8 3,388.0
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