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Economy in Brief

U.S. Mortgage Applications Firm As Refinancings Remain High But Purchase Apps Lag
by Tom Moeller May 20, 2009

The week-to-week volatility in mortgage applications can cloud the underlying trends. Such was the case with the latest report from the Mortgage Bankers Association. The bottom line of the latest report is that low interest rates continue to spur mortgage refinancings but they have done just little to lift home sales.

Last week, overall mortgage applications recovered roughly one-third of the prior week's decline with a 2.3% increase and applications remained higher by nearly one-half from the year ago level. Despite these increases applications remained down sharply from their early-April peak.

The strength in applications versus last year is wholly the result of continuing gains in mortgage refinancings. While they have fallen from the January peak, refinancings last week were more than double the year-ago level as interest rates remain down sharply. During last week the index of applications to refinance a home mortgage rose 4.5% and applications this month are still more than double the year-ago level.

Whatever strength there may be in refinancings is just partially evident in mortgage applications to purchase a home. Purchase applications fell 4.4% from the prior week's level and they remained down by more than one-quarter from the year ago level. The downtrend, however, seems to be bottoming. So far this year purchase applications have moved erratically sideways with a slight upward tilt. That mirrors the trend in new plus existing home sales.

Falling again last week was the effective interest rate on a conventional 15-year mortgage. It dropped to 4.69% from an average that was well over 6.0% last Fall. For a 30-year mortgage rates also were near their recent low at 4.92%. Interest rates on 15- and 30-year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. Moving up slightly was the rate for an adjustable 1-Year mortgage to 6.41% from the low close to 6.0% during January. The rate still was down, however, sharply from the 7.07% peak reached this past Fall.

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. Moreover, 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.

The figures for weekly mortgage applications are available in Haver's SURVEYW database.

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 Fed's announcement yesterday concerning the Term Asset-Backed Securities Loan Facility (TALF) can be found here.

Seeking Stability: What’s Next for Banking Regulation? from the Federal Reserve Bank of Dallas is available here.

MBA Mortgage Applications (3/16/90=100) 05/15/09 05/08/09 Y/Y 2008 2007 2006
Total Market Index 915.9 895.6 47.3% 642.9 652.6 584.2
  Purchase 254.0 265.7 -27.9% 345.4 424.9 406.9
  Refinancing 4,794.4 4,588.6 116.9% 2,394.1 1,997.9 1,634.0
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