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Economy in Brief

Mortgage Applications Off Sharply
by Tom Moeller March 1, 2006

The total number of mortgage applications dropped 1.2% last week, the fourth sharp decline in the last five weeks. The average level of applications during February fell 6.3% from the prior month.

Purchase applications dropped 1.9% from the prior week and the February average fell 10.2% from January. The latest level is down nearly one quarter from the high last Spring.

During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

Applications to refinance ticked up 0.1% w/w but the February average fell 2.0% from January.

The effective interest rate on a conventional 30-year mortgage slipped to 6.42% and averaged 6.48% during February versus 6.34% in January. The effective rate on a 15-year mortgage also slipped to 6.15% and averaged 6.16% during February versus 5.98% in January. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.

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.

Are Banks Vulnerable to a Housing Bust? from the Federal Reserve Bank of St. Louis is available here.

MBA Mortgage Applications (3/16/90=100) 02/24/06 02/17/06 Y/Y 2005 2004 2003
Total Market Index 571.5 578.5 -19.5% 708.6 735.1 1,067.9
  Purchase 400.8 408.7 -8.9% 470.9 454.5 395.1
  Refinancing 1,573.5 1,571.4 -31.0% 2,092.3 2,366.8 4,981.8
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