US: MBA Mortgage Applications

February 1, 2017 06:00 CST

Actual Previous
Composite Index - W/W Change -3.2% 4.0%
Purchase Index - W/W Change -6.0% 6.0%
Refinance Index - W/W Change -1.0% 0.2%

Purchase applications for home mortgages fell a seasonally adjusted 6.0 percent in the January 27 week, while applications for refinancing fell 1.0 percent. Unadjusted, the purchase index increased 12 percent from the previous week to a level that stands 2 percent higher than a year ago. Though seesawing weekly on a seasonally adjusted basis, purchase applications have been surprisingly strong given the rising mortgage rate environment, posting the highest level since June in the prior week. Refinancing, in contrast, has declined dramatically, reaching the lowest level since July 2015 in the prior week and falling further this week, with the refinance share of mortgage activity down another 0.6 percentage points to 49.4 percent. The average interest rate on 30-year fixed rate conforming mortgages ($424,000 or less) rose 4 basis points in the week to 4.39 percent, the highest level since December.

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.