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Economy in Brief

Mortgage Applications Recovered
by Tom Moeller May 17, 2006

Last week, the total number of mortgage applications recovered most of the prior week's decline with a 4.6% gain. The rise lifted the average level in May 0.3% above the April average.

Purchase applications rose 2.4% following a 3.9% w/w decline the prior week. As a result, purchase applications in May are 2.3% 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.

Applications to refinance recovered about all of the prior week's decline with an 8.4% rise. Nevertheless, the May level is 2.7% below the April average which fell 4.1% from March.

The effective interest rate on a conventional 30-year mortgage jumped to 6.90% from 6.84% the prior week and the rate on 15-year financing increased to 6.55%. Rates have risen roughly 50 basis points since year end 2005. 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) 05/12/06 05/05/06 Y/Y 2005 2004 2003
Total Market Index 588.0 562.1 -15.9% 708.6 735.1 1,067.9
  Purchase 426.7 416.5 -9.1% 470.9 454.5 395.1
  Refinancing 1,546.8 1,427.4 -24.1% 2,092.3 2,366.8 4,981.8
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