U.S. Mortgage Applications Fall: Refi's & Purchase Applications Off

The Mortgage Bankers Association indicated that the total number of mortgage applications fell 15.1% from the prior week and that they were off roughly 40% from the peaks earlier this year. Applications had been boosted by lower interest rates which touched the lows of 2003. Few borrowers took out an adjustable rate loan last week (-85.6% y/y) while low interest rates encouraged fixed rate financing; it's more than double the volume at the end of last year.

The index of applications to refinance a home mortgage fell by 19.1% last week after a 64.3% spike during the prior period. While these applications are down by half from their earlier high, the trend still is up due to the decline in interest rates.

Applications for a mortgage to purchase a home also fell last week. The 2.6% decline reversed only some of the prior week's 9.1% rise but the trend remained sharply downward with the fallout in home sales. Since their peak early last year these applications are down nearly 50%.

The effective interest rate on a conventional 15-year mortgage fell week-to-week to 4.99%. That was near the lowest level since 2003, after which home sales surged. For a 30-year mortgage rates held near their recent lows at 5.32%. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. For an adjustable 1-Year mortgage the rate also held near its recent low at 6.18%, down nearly a full percentage point from 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.

Tax Credits for Job Creation and Retention: What Can We Learn from the States? from the Federal Reserve Bank of San Francisco can be found here.