US: MBA Mortgage Applications

Wed Sep 13 06:00:00 CDT 2017

Actual Previous
Composite Index - W/W Change 9.9% 3.3%
Purchase Index - W/W Change 11.0% 1.0%
Refinance Index - W/W Change 9.0% 5.0%

Declining interest rates are invigorating mortgage activity, with purchase applications for home mortgages rising a seasonally adjusted 11 percent in the September 8 week after adjustment for the Labor Day holiday, while applications for refinancing, which are not seasonally adjusted, rose 9.0 percent. Unadjusted, the Purchase Index decreased 13 percent from the prior week and was 7 percent above the level a year ago. The refinance share of mortgage activity increased by 0.1 percentage points to 51.0 percent, the highest level since January. The average interest rate on 30-year fixed-rate conforming mortgages ($424,100 or less) fell 3 basis points to 4.03 percent, the lowest rate since the week of the Presidential elections in November 2016, when mortgage rates embarked on a steep climb higher. Current rates are precisely midway between last year July's 3-year lows at 3.60 percent and the 4.46 percent highs set in March this year.

The second consecutive weekly increase in purchase applications after 3 weeks of declines is a sharp one, and widens the year-on-year gain by 2 percentage points to bring it back up close to the 8 percent plus gains seen earlier in the year. The MBA report suggests that cheaper financing could still energize the housing market after a disappointing spring and summer.

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.