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Economy in Brief

Mortgage Applications Retraced Prior Gain
by Tom Moeller October 11, 2006

According to the Mortgage Bankers Association, the total number of mortgage applications last week retraced about half of the prior period's gain with a 5.5% decline. The decline nevertheless left applications up 1.7% from the September average.

Purchase applications reversed nearly all of the prior week's gain. The 5.3% w/w decline pulled the level of purchase apps in early October 3.1% below the September average which rose 3.2% from August.

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 fell 5.8%. After the prior week's 17.5% surge, that left applications up 8.1% from the September average which rose 8.7% from August.

The effective interest rate on a conventional 30-year mortgage rose four basis points w/w to 6.49%. It averaged 6.50% last 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 6.18% versus 6.20% averaged last month. 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) 10/06/06 09/29/06 Y/Y 2005 2004 2003
Total Market Index 599.1 633.9 -13.8% 708.6 735.1 1,067.9
  Purchase 383.3 404.6 -18.4% 470.9 454.5 395.1
  Refinancing 1,857.0 1,970.8 -7.4% 2,092.3 2,366.8 4,981.8
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