The total number of mortgage applications surged 8.1% last week following declines during the prior two weeks, according to the Mortgage Bankers Association.

Strongest was a 9.1% gain in applications to refinance which rose after a 1.8% increase during the prior week.

Purchase applications also were strong and rose 7.4%. The gain followed steady declines during five of the previous six weeks. It was to the highest level since early 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.

The effective interest rate on a conventional 30-year mortgage dropped a sharp ten basis points w/w to 6.74%, the lowest since early June. Rates averaged 6.91% during July, up from 6.28% in December. Rates for 15-year financing similarly fell sharply to 6.45% last week. 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 and 35 top lenders in the U.S. housing industry. Then it derives 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.

For yesterday's statement by the FOMC follow this link.

The U.S. Economy and Monetary Policy from the Federal Reserve Bank of San Francisco can be found here.