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Economy in Brief

Mortgage Purchase Application Recovery Stalled
by Tom Moeller September 20, 2006

After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.

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.

Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.

Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.

The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% 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) 09/15/06 09/08/06 Y/Y 2005 2004 2003
Total Market Index 595.8 584.2 -22.8% 708.6 735.1 1,067.9
  Purchase 397.9 410.2 -20.5% 470.9 454.5 395.1
  Refinancing 1,748.7 1,597.0 -25.7% 2,092.3 2,366.8 4,981.8
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