US: MBA Mortgage Applications

Wed Apr 25 06:00:00 CDT 2018

Actual Previous
Composite Index - W/W Change -0.2% 4.9%
Purchase Index - W/W Change 0.0% 6.0%
Refinance Index - W/W Change -0.3% 4.0%

Despite a jump in mortgage rates, purchase applications for home mortgages remained unchanged on a seasonally adjusted basis in the April 20 week, while the typically more interest rate sensitive applications for refinancing did register a small decline of 0.3 percent. Unadjusted, purchase applications were a sharp 11 percent higher than in the same week a year ago. The refinance share of mortgage activity fell 0.4 percentage points from the previous week to 37.2 percent, the smallest share since September 2008. Mortgage rates rose to the highest level since September 2013, with the average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) rising 7 basis points from the previous week to 4.73 percent. Rising interest rates tend to dampen home buyer enthusiasm, but the impressive 11 percent year-on-year gain in purchase applications shows buyers are still undeterred and confirms the continuation of the solid and accelerating pace of the housing sector indicated by the existing and new home sales reports for March released earlier this week.

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.