US: MBA Mortgage Applications

January 4, 2017 06:00 CST

Actual Previous
Composite Index - W/W Change -12.0% 2.5%
Purchase Index - W/W Change -2.0% 3.0%
Refinance Index - W/W Change -22.0% 3.0%

Purchase applications for home mortgages fell 2.0 percent on a seasonally adjusted basis in the December 30 week compared to the level 2 weeks earlier, which was the last prior reading due to the Christmas holiday. The refinance index was down a much sharper 22 percent compared to two weeks ago, as higher interest rates continue to deter refinancing by homeowners to a greater extent than the mortgage applications of home buyers. However, the unadjusted purchase index was down 41 percent compared with two weeks ago, pulling down the year-on-year change into negative territory for the first time in 2016 at minus 1 percent. The average interest rate on 30-year fixed rate conforming mortgages ($417,000 or less) halted its steep climb higher and at 4.39 percent was down 6 basis points from the 4.45 percent recorded in the prior week, the highest rate since May 2014.

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.