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Economy in Brief

Mortgage Applications Crimped By Higher Rates
by Tom Moeller May 10, 2006

The total number of mortgage applications fell another 5.8% last week. It was the fourth decline during the last five weeks and pulled the opening level in May 2.0% below April which fell 1.1% from the March average.

Purchase applications gave back 3.9% w/w of an 11.3% recovery at the end of April. Nevertheless, at the start of May purchase applications were 1.1% ahead of April which rose 1.1% versus March.

During the last ten years there has been a negative 80% correlation between the interest rate level on 30-year financing and purchase applications while during those years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

An 8.8% w/w decline in applications to refinance lowered the level in early May 6.6% below the April average which fell 4.1% from March.

The effective interest rate on a conventional 30-year mortgage rose again to 6.84% from 6.81% at the end of April. The rate on 15-year financing similarly increased to 6.51%, the highest level since early 2002. 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.

MBA Mortgage Applications (3/16/90=100) 05/05/06 04/28/06 Y/Y 2005 2004 2003
Total Market Index 562.1 596.8 -28.0% 708.6 735.1 1,067.9
  Purchase 416.5 433.3 -20.8% 470.9 454.5 395.1
  Refinancing 1,427.4 1,565.6 -36.9% 2,092.3 2,366.8 4,981.8
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