US: MBA Purchase Applications


Wed Jan 14 06:00:00 CST 2015

Actual Previous
Composite Index - W/W Change 49.1% -9.1%
Purchase Index - W/W Change 24.0% -5.0%
Refinance Index - W/W Change 66.0% -12.0%

Highlights
A big drop in mortgage rates led to an enormous surge in mortgage applications, up 24.0 percent for purchase applications in the January 9 week and up 66.0 percent for refinancing applications. Mortgage rates fell to their lowest point since May 2013 in the week with the average conforming loan ($417,000 or less) down a very sizable 12 basis points to 3.89 percent. Weekly economic data can of course be volatile, but volatility aside today's report points to a rate-led burst of strength for the housing sector.

Definition
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.

Description
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.