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Economy in Brief

Mortgage Applications Down By One-third
by Tom Moeller August 6, 2008

The total number of mortgage applications ticked up 2.8% last week, but that followed two weeks of sharp decline, according to the Mortgage Bankers Association. As a result, applications in early August were 11.1% below the July average. In July, applications fell 2.9% from June following sharper m/m declines during most of this year.

In early August, the level of all mortgage applications was down by one-third from the year-ago level.

Purchase applications fell 1.8% last week which made up just a piece of the prior three weeks' sharp declines. That left applications for a mortgage to purchase a home, early this month, 8.0% below the July average.

During the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

Applications to refinance a home mortgage rose 4.4% after two weeks of strong decline. Applications began this month 15.7% below the July average.

The effective interest rate on a conventional 15-year mortgage ticked up w/w to 6.02% after two months when they averaged 5.94%. For a thirty year mortgage, rates were little changed at 6.41%. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. For an adjustable rate 1-Year mortgage the rate slipped to 7.17% from a 7.20% average last month.

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.

The Rise and Fall of Subprime Mortgages from the Federal Reserve Bank of Dallas can be found here.

MBA Mortgage Applications (3/16/90=100) 08/01/08 07/25/08 Y/Y 2007 2006 2005
Total Market Index 432.6 420.8 -34.1% 652.6 584.2 708.6
  Purchase 315.2 309.5 -29.5% 424.9 406.9 470.9
  Refinancing 1,121.8 1,074.4 -40.4% 1,997.9 1,634.0 2,092.3
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