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Economy in Brief

Mortgage Applications Fell Hard, Rates Above 7%
by Tom Moeller June 28, 2006

The total number of mortgage applications fell a sharp 6.7% last week after a slight decline the prior week. The drop pulled the average number of applications 1.8% in June below the May average and applications were 32.0% below the year ago level.

Applications to refinance cratered 7.5% last week, the fourth w/w drop this month. Refis in June were 3.2% below the May average and 46.4% below the year earlier level.

Purchase applications also fell sharply from the previous week. The 6.2% drop lowered the June average 1.3% below May and 18.5% below the year ago level.

During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

The effective interest rate on a conventional 30-year mortgage rose another twelve basis points to 7.08%, the highest level since April 2002. The rate on 15-year financing also surged ten basis points to 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities.

During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest 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 Price of Residential Land in Large U.S. Citiesfrom the Federal Reserve Board is available here.

MBA Mortgage Applications (3/16/90=100) 06/23/06 06/16/06 Y/Y 2005 2004 2003
Total Market Index 529.6 567.6 -32.0% 708.6 735.1 1,067.9
  Purchase 389.0 414.8 -18.5% 470.9 454.5 395.1
  Refinancing 1,356.0 1,466.1 -46.4% 2,092.3 2,366.8 4,981.8
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