US: MBA Mortgage Applications

January 25, 2017 06:00 CST

Actual Previous
Composite Index - W/W Change 4.0% 0.8%
Purchase Index - W/W Change 6.0% -5.0%
Refinance Index - W/W Change 0.2% 7.0%

Seasonally adjusted purchase applications for home mortgages rose 6.0 percent in the January 20 week to the highest level since June. Unadjusted, the purchase index rose 2 percent in the week and was 0.1 percent higher than a year ago. Applications for refinancing rose just 0.2 percent from the prior week, with the refinance share of mortgage activity falling to 50 percent, down 3 percentage points from the prior week and the lowest level since July 2015. Mortgage rates resumed their climb after edging lower from December's post election highs in the prior 3 weeks, with the average interest rate on 30-year fixed rate conforming mortgages ($424,000 or less) increasing by 8 basis points to 4.35 percent. While also negatively impacted by higher rates, which have risen by about three quarters of a percentage point s from the 3-year lows seen in July, purchase application volumes, in contrast to refinancing, are showing surprising resiliency.

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.