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Economy in Brief

Mortgage Applications Portend Further Weakness in Housing
by Tom Moeller August 30, 2006

The total number of mortgage applications slipped another 0.9% last week according to the Mortgage Bankers Association. The average level of applications in August rose 2.9% from July.

Last week's decline was led by a 1.6% drop in purchase applications and applications are down 17.8% from the weekly high in January. It was sixth decline in the last seven weeks and lowered purchase apps in August 3.5% below the July average. That was the fourth consecutive m/m decline.

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.

Applications to refinance were roughly unchanged w/w and rose 13.3% in August versus July.

The effective interest rate on a conventional 30-year mortgage was about unchanged at 6.60% versus 6.58% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also remained unchanged at 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.

MBA Mortgage Applications (3/16/90=100) 08/25/06 08/18/06 Y/Y 2005 2004 2003
Total Market Index 556.5 561.5 -23.0% 708.6 735.1 1,067.9
  Purchase 375.9 382.2 -20.1% 470.9 454.5 395.1
  Refinancing 1,609.2 1,608.5 -26.4% 2,092.3 2,366.8 4,981.8
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