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Economy in Brief

Mortgage Applications Down Further
by Tom Moeller March 22, 2006

The total number of mortgage applications slumped 1.6% last week and continued the downtrend which began the middle of last year. Since the weekly peak last June, applications are down 36.3%. In March, applications are 2.4% below the February average which fell 6.3% m/m.

Purchase applications reversed the prior week's gain and fell 2.3%. Versus the weekly peak last May purchase applications are down 25.2% and the March level is down 2.0% from the February average.

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 were off another 0.6% on top of the prior week's 1.9% drop. Since the peak last June refis are down 46.9% and the March level is 2.6% below the February average which fell 2.0% from January.

The effective interest rate on a conventional 30-year mortgage jumped for the second week. The nine basis point rise in the effective rate on a 15-year mortgage to 6.36% was to the highest level since mid-2002. The ten basis point rise in the effective rate on a 30 year mortgage pulled it to 6.65%. 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.

The Yield Curve and Predicting Recessions from the Federal Reserve Board can be found here.

MBA Mortgage Applications (3/16/90=100) 03/17/06 03/10/06 Y/Y 2005 2004 2003
Total Market Index 565.0 5574.4 -14.2% 708.6 735.1 1,067.9
  Purchase 393.6 403.0 -11.8% 470.9 454.5 395.1
  Refinancing 1,574.5 1,583.6 -30.2% 2,092.3 2,366.8 4,981.8
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