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Economy in Brief

Mortgage Applications Reversed Gain
by Tom Moeller November 22, 2006

The total number of mortgage applications reversed all of the prior period's gain and fell 2.8% last week, according to the Mortgage Bankers Association. Applications nevertheless remained 6.3% higher this month versus the October average.

Purchase applications fell 2.8% and also reversed the prior week's gain. On average November purchase applications remained 6.3% ahead of the October level. Purchase applications fell 3.6% last month from September on 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 average size of an application to purchase a home rose to $225,800, up from $224,500 averaged last year and $206,800 during 2004.

Applications to refinance reversed most of the prior week's gain with a 4.3% decline but are up 9.7% from the October average which rose 3.5% from September.

The effective interest rate on a conventional 30-year mortgage fell for the second week, slightly to 6.32% and was down from a high last month of 6.57%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing, however, increased to 6.12%. The peak for 15 year financing was 6.75% during June. 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 covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site here.

Council of Economic Advisors Chairman Ed Lazear's discussion of the updated White House economic forecast is available here.

MBA Mortgage Applications (3/16/90=100) 11/10/06 11/03/06 Y/Y 2005 2004 2003
Total Market Index 623.6 647.5 -1.9% 708.6 735.1 1,067.9
  Purchase 401.4 412.9 -15.0% 470.9 454.5 395.1
  Refinancing 1,935.3 2,022.2 22.2% 2,092.3 2,366.8 4,981.8
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