US: MBA Mortgage Applications

January 11, 2017 06:00 CST

Actual Previous
Composite Index - W/W Change 5.8% -12.0%
Purchase Index - W/W Change 6.0% -2.0%
Refinance Index - W/W Change 4.0% -22.0%

Purchase applications for home mortgages rose a seasonally adjusted 6.0 percent in the January 6 week, while applications for refinancing increased 4.0 percent. Unadjusted, the purchase index rose 45 percent from the previous week, but was down a sharp 18 percent year-on-year. As in the previous week, mortgage rates fell back slightly, with the average interest rate on 30-year fixed rate conforming mortgages ($417,000 or less) edging down 7 basis points to 4.32 percent. The modest retreat in interest rates in the last two weeks has brought back some life to mortgage activity, but prospective home buyers and refinacing homeowners are still adjusting to rates that are 70 basis points higher than they were at the end of September. And despite the weekly increase in purchase applications, the year-on-year decline points to weakness in future home sales.

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.