The total number of mortgage applications increased 1.5% last week after a slight 0.2% decline to start the month, according to the Mortgage Bankers Association.

The gain was wholly due to a 4.5% rise in applications to refinance after the 0.2% uptick during the prior week.

Purchase applications fell 1.0% after a 0.8% decline during the prior week.

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 effective interest rate on a conventional 30-year mortgage ticked up two basis points to 6.46%. Rates averaged 6.40% last month and 6.28% in December. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing dipped slightly to 6.22%. 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.

Monetary Policy Inertia and Recent Fed Actions from the Federal Reserve Bank of San Francisco is available here.