US: MBA Mortgage Applications

Wed Apr 06 06:00:00 CDT 2016

Actual Previous
Composite Index - W/W Change 2.7% -1.0%
Purchase Index - W/W Change -2.0% 2.0%
Refinance Index - W/W Change 7.0% -3.0%

Purchase applications for home mortgages declined by 2.0 percent in the April 1 week, but refinancing, boosted by lower rates, increased by 7 percent. The average rate for 30-year conforming loans ($417,000 or less) dropped by 8 basis points from the prior week to 3.86 percent. Year-to-year, the purchase index was up 11 percent, still strong but a far cry from early March levels when the it was more than 30 percent higher than year ago levels. The weekly report fails to support certain isolated evidence of revival in the housing market, such as last week's construction spending report for February, showing spending for new single-family homes rising 1.2 percent month-to-month and multi-family homes 0.9 percent. Nevertheless, the 11 percent year-to-year rise in the purchase index is in line with February's year-to-year 10.7 percent increase in residential construction spending, and these are still quite impressive.

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.