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Economy in Brief

Mortgage Purchase Application Down Again
by Tom Moeller September 27, 2006

The total number of mortgage applications fell 4.9% last week according to the Mortgage Bankers Association. For the month, applications nevertheless are 3.6% above the August average which fell 3.5% from July.

Purchase applications slid another 5.5% after the prior week's 3.0% decline. That dropped this month's gain to 2.7% versus a 3.5% decline during August. The latest level is 28.5% below the peak during May of 2005.

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 slipped 4.1% after the prior week's 9.5% surge. The average level of refis in September is up 4.7% from August which surged 13.3% m/m from July.

The effective interest rate on a conventional 30-year mortgage fell a sharp 20 basis points to 6.39% and has averaged 6.51% 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 fell that amount w/w to 6.10% 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.

Inflation Uncertainty and the Recent Low Level of the Long Bond Rate from the Federal Reserve Bank of Richmond is available here.

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) 09/22/06 09/15/06 Y/Y 2005 2004 2003
Total Market Index 566.5 595.8 -21.5% 708.6 735.1 1,067.9
  Purchase 375.9 397.9 -22.2% 470.9 454.5 395.1
  Refinancing 1,677.5 1,748.7 -20.4% 2,092.3 2,366.8 4,981.8
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