U.S. Weekly Mortgage Applications Rise But Trend Is Weak

In its latest report, the Mortgage Bankers Association indicated that mortgage applications overall increased 2.8% but that was the weakest increase in the last three weeks. As a result, applications remained near the lowest level since last November.

Earlier indications of improved home buying activity faded this month. Purchase applications rose just 1.3% last week after the 9.4% decline during the prior period. For the month so far applications are down slightly after the 3.2% increase during June. Nevertheless, since the early-February low purchase applications have risen 14% 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.

Though it ticked up in the latest week or two, the interest in refinancing an existing mortgage remained quite low. Applications to refinance rose 4.0% after even stronger increases during the prior two weeks. Despite these gains, however, refinancings for July so far are down 5.6% from June and near the lowest level since November. Since their peak in January, refinance applications have fallen by three-quarters.

Since the beginning of this year, fixed-rate mortgage applications have fallen by slightly more than one-half while adjustable-rate mortgages have doubled. The number of conventional loans has fallen roughly two-thirds while gov't backed loans have fallen nearly 40%.

The end of the mortgage financing boom can be traced, in part, to the rise in interest rates. The effective interest rate on a conventional 15-year mortgage rose last week to 5.06% and for the month has averaged 5.00%, up from the April low of 4.69%. For a 30-year mortgage, the rate also rose last week to 5.55%. Though down slightly from June, rates were up from the 4.81% March low. Interest rates on 15- and 30-year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. Rates on adjustable 1-Year mortgages averaged 6.55% this month versus the low near 6.0% during January. Nevertheless, the rate remained down from the 7.07% peak reached last fall.

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.

Has Greater Globalization Made Forecasting Inflation More Difficult? from the Federal Reserve Bank of Dallas can be found here.