US: MBA Mortgage Applications

December 20, 2017 06:00 CST

Actual Previous
Composite Index - W/W Change -4.9% -2.3%
Purchase Index - W/W Change -6.0% -1.0%
Refinance Index - W/W Change -3.0% -3.0%

Mortgage activity slowed notably in the December 15 week, with purchase applications for home mortgages falling by a seasonally adjusted 6 percent from the prior week, putting the unadjusted purchase index only 1 percent above the year ago level, 9 percentage points less than the prior week's year-on-year gain. The weekly drop in refinancing applications was less pronounced at minus 3 percent, raising the refinancing share of mortgage activity by 1.5 percentage points to 53.9 percent, the highest level since December 2016. The average interest rate on 30-year fixed-rate conforming mortgages ($424,100 or less) declined 4 basis points from the prior week to 4.16 percent. The second weekly decline in purchase applications following 6 weeks of consecutive gains came despite cheaper financing, perhaps indicating that the upsurge in the housing market seen in most housing data during the fourth quarter has lost momentum at year end. Further insight into the condition of the housing market can be gained later this morning with the release of the existing home sales report for November, expected to show significant strength.

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.