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Economy in Brief

U.S. Mortgage Applications Collapse As Higher Rates Stymie Refinancing
by Tom Moeller June 23, 2009

The latest data from the Mortgage Bankers Association strongly suggest that the refinancing boom has reached an end. Overall, mortgage applications dropped sharply last week to the lowest level since last November. The moderate increase in interest rates is behind the lessened attractiveness of refinancing. The 15.8% w/w drop in overall mortgage applications was led by a collapse in refis. Last week, they dropped by one-quarter from the prior week and they are off by 80% during just the last two months.

While still low by historical standards, rates indeed have moved off the lows. And it's at the margin that activity is affected most. The effective interest rate on a conventional 15-year mortgage jumped last week to 5.24% and the rate is up by more than 50 basis points from the April low. For a 30-year mortgage, rates also rose to 5.68% versus the 4.81% low. Interest rates on 15- and 30-year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. Up also were adjustable 1-Year mortgage rates at 6.56% versus the low close to 6.0% during January. The rate still was down, however, sharply from the 7.07% peak reached this past fall.

Despite the drop in re-fis, the interest in home buying appears intact. Purchase applications slipped last week but for June so far applications are 1.6% higher than during May. That follows the trend in new plus existing home sales.

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.

MBA Mortgage Applications (3/16/90=100) 06/12/09 06/05/09 Y/Y 2008 2007 2006
Total Market Index 514.4 611.0 1.2% 642.9 652.6 584.2
  Purchase 261.2 270.7 -27.5% 345.4 424.9 406.9
  Refinancing 1,998.1 2,605.7 44.9% 2,394.1 1,997.9 1,634.0
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