US: MBA Purchase Applications

Wed Jan 07 06:00:00 CST 2015

Composite Index - W/W Change -9.1%
Purchase Index - W/W Change -5.0%
Refinance Index - W/W Change -12.0%

Mortgage application activity fell sharply in the 2 weeks to January 2, down 5.0 percent for purchase applications and down 12.0 percent for refinancing applications. The trend for purchase applications, which offers an indication on underlying home purchases, is clearly negative, at a year-on-year minus 8.0 percent.

The declines come despite low mortgage rates with the average 30-year rate down slightly in the 2-week period to 4.01 percent for conforming loans ($417,000 or less). Note that today's report covers not the usual 1-week period but, due to a holiday for MBA, a 2-week period.

The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.