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Economy in Brief

Mortgage Applications Recovered
by Tom Moeller May 24, 2006

The total number of mortgage applications fell a hard 6.0% last week and pulled the average level in May 1.0% below April.

Purchase applications cratered 7.1% w/w but in May remained 0.3% 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 reversed about half of the prior week's rise with a 4.3% decline. The May level is 2.8% below the April average which fell 4.1% from March.

The effective interest rate on a conventional 30-year mortgage retraced all of the prior week's increase and fell back to 6.84% while the rate on 15-year financing fell to 6.52%. 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) 05/19/06 05/12/06 Y/Y 2005 2004 2003
Total Market Index 552.6 588.0 -24.3% 708.6 735.1 1,067.9
  Purchase 396.4 426.7 -9.1% 470.9 454.5 395.1
  Refinancing 1,480.5 1,546.8 -31.7% 2,092.3 2,366.8 4,981.8
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