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Economy in Brief

Lower U.S. Interest Rates Generate Mortgage Refinancing
by Tom Moeller  July 20, 2011

Overall mortgage applications jumped 15.5% last week. The gain followed four weeks of decline. Remaining strong were applications to refinance which jumped nearly one-quarter w/w, also after four weeks of decline. Working the other way, applications to purchase a home slipped w/w and were near the lowest since February. During the last ten years, there has been an 81% correlation between the level of purchase applications and new plus existing single family home sales.

The effective fixed-interest rate on conventional 15-year mortgages fell to the record low of 3.90% last week. As the yield curve has steepened, so too has the mortgage interest rate spread. For 30-year mortgages, the rate was 4.74% and the spread versus 15-year mortgages was a record. Interest rates on fixed 15-year mortgages are closely correlated (near-90%) with the rate on 10-year Treasury securities. At 7.19%, interest on variable rate financing held near the highest level since April.

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

Do Banking Shocks Matter For The U.S. Economy? from the Federal Reserve Bank of Dallas is available here.

BA Mortgage Applications (SA, 3/16/90=100) 7/15/11 7/8/11 7/1/11 Y/Y % 2010 2009 2008
Total Market Index 556.0 481.3 507.0 -26.2 659.3 736.4 642.9
 Purchase 183.7 183.9 188.9 12.0 199.8 263.5 345.4
 Refinancing 2,728.6 2,217.3 2,363.6 -34.4 3,348.1 3,509.2 2,394.1
15-Year Mortgage Effective Interest Rate (%) 3.90 3.96 4.01 4.32
4.39 4.85 5.88
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