US: MBA Mortgage Applications

Wed Jan 17 06:00:00 CST 2018

Actual Previous
Composite Index - W/W Change 4.1% 8.3%
Purchase Index - W/W Change 3.0% 5.0%
Refinance Index - W/W Change 4.0% 11.00%

The highest interest rates in ten months did not discourage home buyers and refinancing homeowners in the January 12 week, with purchase applications for home mortgages rising by a seasonally adjusted 3 percent from the prior week and applications for refinancing by 4 percent. Unadjusted, the purchase index rose 35 percent from the previous week and was 7 percent higher than the same week a year ago. The refinance share of mortgage activity fell by 0.7 percentage points to 52.9 percent. Rates rose sharply, with the average interest rate on 30-year fixed-rate conforming mortgages ($453,100 or less) up 10 basis points to 4.33 percent, the highest level since March 2017. Despite the headwind of higher mortgage rates, purchase applications are back up to a strong 7 percent year-on-year gain pace, confirming the continuation of the robust housing market strength seen in the last quarter.

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.