US: MBA Mortgage Applications

Wed May 23 06:00:00 CDT 2018

Actual Previous
Composite Index - W/W Change -2.6% -2.7%
Purchase Index - W/W Change -2.0% -2.0%
Refinance Index - W/W Change -4.0% -4.0%

Under continuing pressure from rising interest rates, purchase applications for home mortgages fell a seasonally adjusted 2 percent in the May 18 week. The fourth weekly decline in a row shrank the year-on-year gain in purchase applications to 3 percent. Applications for refinancing, which tend to be even more sensitive to interest rate fluctuations, fell 4 percent from the prior week to their lowest level since December 2000. The refinance share of mortgage activity fell 0.2 percentage points to 35.7 percent. The average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) rose 9 basis points from the prior week to 4.86 percent, the highest level since April 2011. Higher financing costs are taking their toll on mortgage activity, which should normally have a negative impact on the housing market, but this has not been reflected in government reports, which have so far pointed to strength rather than weakness. Later this morning, the release of new home sales data for April will offer further insight into the state of the housing market.

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.