US: MBA Mortgage Applications

Wed Oct 25 06:00:00 CDT 2017

Actual Previous
Composite Index - W/W Change -4.6% 3.6%
Purchase Index - W/W Change -6.0% 4.0%
Refinance Index - W/W Change -3.0% 3.0%

After several weeks of strength, purchase applications for home mortgages took a tumble and fell by 6.0 percent on a seasonally adjusted basis in the October 20 week. Yet without adjustments, which included the Columbus Day holiday in the prior week, purchase applications were up 4,0 percent on the week, improving the year-on-year gain by 1.0 percentage point to a very solid 10.0 percent in what is a positive signal for underlying home sales. Refinancing activity fell 3.0 percent from the previous week, though the refinancing share of total activity rose 0.9 percentage points to 49.5 percent. Interest rates moved higher, with the average rate on conforming 30-year fixed mortgages ($424,100 or less) up 4 basis points to 4.18 percent. MBA reports in recent weeks continue to show home buyers much more active than they were a year ago, yet strength here has translated poorly into strength of government housing data, which has been disappointing and shows a gradual slowing on most fronts. Later this morning, the release of New Home Sales for September will shed further light on the nation's housing sector.

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.