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Economy in Brief

U.S. Weekly Mortgage Applications Strengthen As Interest Rates Near The Lowest Since 2003
by Tom Moeller September 23, 2009

The Mortgage Bankers Association indicated that mortgage applications overall increased 12.8% last week as lower interest rates spurred strength in refinancings. Applications to refinance jumped 17.4% last week and in September they have risen 29.3% from August. Nevertheless, since their peak this past January refinance applications have fallen by nearly two-thirds.

I tandem, there has been lesser strength in purchase applications. Applications rose 5.6% last week and that made up roughly half of the prior week's decline. So far this month purchase applications have risen 4.6% from August after that month's 3.4% increase. Since the early-February low purchase applications have risen 22% as new and existing home sales have recovered. 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 effective interest rate on a conventional 15-year mortgage fell last week to 4.67%, down from the high of 5.21% averaged during June. These figures are near the lowest since 2003. For a 30-year mortgage the rate also fell last week to 5.19% after reaching a high of 5.79% in early-June. Interest rates on 15-year and 30-year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. Rates on adjustable 1-Year mortgages averaged 6.66% this month versus the low near 6.0% during January. Nevertheless, the rate remained down from the 7.07% peak reached last fall.

Though they have recovered of late, since the beginning of this year fixed-rate mortgage applications have fallen by slightly more than one-half while adjustable-rate mortgages have more than doubled. The number of conventional loans has fallen nearly two-thirds but gov't backed loans.

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

TALF: Jump-Starting the Securitization Markets from the Federal Reserve Bank of Dallas is available here.

MBA Mortgage Applications (3/16/90=100) 09/18/09 09/11/09 Y/Y 2008 2007 2006
Total Market Index 668.5 592.8 13.0% 642.9 652.6 584.2
  Purchase 288.3 272.9 -15.8 345.4 424.9 406.9
  Refinancing 2,881.5 2,454.5 41.0 2,394.1 1,997.9 1,634.0
15-Year Effective Interest Rate (%) 4.7% 4.7% 6.1% (9/08) 5.9% 6.2% 6.3%
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