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Economy in Brief

Mortgage Applications Fell Further
by Tom Moeller June 7, 2006

The total number of mortgage applications fell 1.4% last week and lowered the level in early June 4.8% below the May average which fell 2.2% from April.

Purchase applications were stable w/w but because of earlier declines the opening level in June was 3.2% below the May average. It was down 0.8% versus April.

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 dropped 3.8% on top of the prior week's 4.8% skid. Refis opened June 7.5% below the May average which fell 4.1% from April.

The effective interest rate on a conventional 30-year mortgage dipped to 6.83% from 6.86% the prior week. Rates began June about even with the May average of 6.86% but were up sharply from the 5.81% low last June. The rate on 15-year financing was stable for the third week at 6.52%. 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.

Challenges of Conducting Effective Risk Management in Community Banks, yesterday's speech by Fed Governor Susan Schmidt Bies, is available here.

MBA Mortgage Applications (3/16/90=100) 06/02/06 05/26/06 Y/Y 2005 2004 2003
Total Market Index 534.4 541.9 -29.3% 708.6 735.1 1,067.9
  Purchase 395.6 395.5 -17.5% 470.9 454.5 395.1
  Refinancing 1,356.0 1,409.0 -42.6% 2,092.3 2,366.8 4,981.8
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