US: MBA Mortgage Applications

Wed Jan 03 06:00:00 CST 2018

Actual Previous
Composite Index - W/W Change -2.8% -4.9%
Purchase Index - W/W Change 1.0% -6.0%
Refinance Index - W/W Change -7.0% -3.0%

Purchase applications for home mortgages rose from the level two weeks ago (a holiday week reading was skipped by the MBA) by a seasonally adjusted 1 percent in the December 29 week, but applications for refinancing fell again during the period and were down 7 percent. Unadjusted, the purchase index ended the year just 3 percent higher than the level in the same week a year ago, somewhat disappointing after spending much of the year closer to plus 10 percent year-on-year. The refinance share of mortgage activity increased by 0.2 percentage points to 52.0 percent from the prior week but was down 1.9 percentage points from the last reported reading two weeks ago. Financing rates were stable during the week, with the average interest rate on 30-year fixed-rate conforming mortgages ($424,100 or less) remaining unchanged from the prior week at 4.25 percent, although this is 9 basis points above the rate of the last MBA report two weeks ago. While most housing market data has shown acceleration going into the year end, today's MBA report for the final two weeks of the year may be showing growth slowed by interest rates.

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.