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Economy in Brief

Mortgage Applications Lackluster, Rates Down
by Tom Moeller August 23, 2006

The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July.

Again, recent gains were led by higher applications to refinance which rose 1.3% for the fifth consecutive weekly increase. Refis in August are 12.6% higher than in July.

Moving in the other direction, purchase applications fell 1.0% last week for the fifth decline in the last six weeks. Purchase apps in August are 2.9% below the July average.

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 fell sharply to 6.58% from 6.73% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell ten basis points to 6.32% and the peak rate was 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.

A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets
from the Federal Reserve Board can be found here.

MBA Mortgage Applications (3/16/90=100) 08/18/06 08/11/06 Y/Y 2005 2004 2003
Total Market Index 561.5 561.2 -25.7% 708.6 735.1 1,067.9
  Purchase 382.2 385.9 -21.7% 470.9 454.5 395.1
  Refinancing 1,608.5 1,587.5 -30.5% 2,092.3 2,366.8 4,981.8
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