U.S. Weekly Mortgage ApplicationsRise But Trend Remains Weak

The Mortgage Bankers Association indicated that mortgage applications overall increased 5.6% last week; however, that only made up for a 3.5% decline during the prior period. Together, the latest figures left applications for all of August up 0.6% from July after that month's 3.7% decline. Applications still remained near the lowest level since last November.

There has been some life in purchase applications, but it's hardly vibrant. Applications rose 3.9% last week after a 1.1% increase during the prior period. Together the gains lifted applications for the month so far by 2.2% from July when applications fell 1.3% m/m. Nevertheless since the early-February low, purchase applications have risen 15% 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.

Interest in mortgage refinancing has been stifled of late by the rise in interest rates. Applications to refinance made up merely the prior week's decline with a 6.9% increase. So far in August, applications are 0.8% lower than July 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 nearly two-thirds while gov't backed loans have fallen by more than one-third.

The earlier rise in mortgage interest rates has stabilized, for the moment. The effective interest rate on a conventional 15-year mortgage fell last week to 4.76% and for the month averaged 4.89%. These figures are up from the April low of 4.69% but the rate had reached a high of 5.36% in early-June. For a 30-year mortgage, the rate also fell last week to 5.35% after reaching a high of 5.79% in early-June.< 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 6.71% 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.

Sustaining a Global Recovery from the International Monetary Fund can be found here. 

Encouraging indications that consumer spending was improving faded during August. During the latest week, chain store sales fell 0.9% and that was enough to leave the August average unchanged from July after that month's 1.0% increase from June.

During the last ten years there has been a 69% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales. The weekly figures are available in Haver's SURVEYW database.

The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

The Confederation of British Industry continues to see very weak orders in both its domestic and export surveys. Both total and export orders are in the lower ten percentile of their historic range of values. Stocks of goods with a diffusion reading that fell to +13 from +20 are now near their range mid range (standing at their 45th percentile) and are well below their 12-monhth average, showing inventory progress has been made. In contrast orders are weaker than their 12-month averages. What ever is getting better it does not seem to be boosting orders despite the gain in August.

To compare with that finding we have the contrary result that although orders are very weak output volume over the next three months is expected to do much better. The survey measure rose to -5 in August from -14 in July, thrusting output volume expectations into the 57th percentile of their range, far better than the reading for orders. The average price expected has however slipped in August to -17 from -6 in June. That is on the lower 6 percentile of its range. These readings contrast with the UK MFG readings from NTC which at 50.84 is indicating expansion and stands in the 74th percentile of its range. (The NTC survey is also a diffusion survey but it presents its statistics as dose the US ISM rather than as an ‘up’ minus ‘down’ diffusion index as the one used by the CBI. For the CBI, zero is neutral; for the NTC index, 50 is the neutral mark. Also the NTC index is for manufacturing not all of industry, as is the CBI report.)

The outlook portion of the CBI index is relatively more positive, but still is not as upbeat as the Markit/NTC index. And the orders assessment from the CBI is downright depressing as its improvement in July still leaves the index lower over three months and longer. The picture of the UK MFG industry is curiously mixed. The differences are not simply those between different surveys but among somewhat related measures in the same survey.