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Economy in Brief

by Tom Moeller U.S. Mortgage Application Surge QuestionableAugust 15, 2007

The total number of mortgage applications surged another 3.4% last week following the 8.1% jump during the week prior, according to the Mortgage Bankers Association.

Purchase applications were strong again and posted a 3.9% gain on top of the 7.4% jump the prior week.

What makes these gains questionable is not whether or not they occurred. But whether they are indicative of the prospective health of the housing business. The mortgage credit crunch now underway has led borrowers to file applications with multiple lenders to better ensure funds at closing.

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 rose 2.6% after a 9.1% increase during the prior week.

The effective interest rate on a conventional 30-year mortgage rose slightly w/w to 6.76%, near the lowest since early June. Rates averaged 6.91% during July, up from 6.28% in December. Rates for 15-year financing similarly rose to 6.48% 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.

The July 2007 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve Board can be found here.

MBA Mortgage Applications (3/16/90=100) 08/03/07 7/27/07 Y/Y 2006 2005 2004
Total Market Index 678.7 656.5 20.9% 584.2 708.6 735.1
  Purchase 464.9 447.4 20.5% 406.9 470.9 454.5
  Refinancing 1,929.6 1,881.1 21.5% 1,633.0 2,092.3 2,366.8
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