Despite a dip in mortgage rates in the October 17 week, purchase applications weakened as potential homebuyers remain on the sidelines. Consumers are uncertain about the economic outlook and their job security, and about and about overall home affordability. However, lower rates brought on another wave of refinancing activity as current mortgage holders acted to reduce monthly housing costs in the face of eroding household buying power. In the present circumstances, adjustable rate mortgages are attractive in offering significant reductions in payments for the first years of the new mortgage. Some are probably planning to refinance again later if fixed rates come down further.

The MBA mortgage applications index is 0.3 percent lower in the October 17 week. It is 18.6 percent lower than four weeks ago and 47.2 percent higher than a year earlier. The purchase index is 5.2 percent lower in the current week and 9.9 percent lower than four weeks ago and 19.8 percent higher than a year earlier. The refinancing index is 4.0 percent higher and is 24.5 percent lower than four weeks ago and 80.6 percent higher than a year earlier. In the October 17 week, refinancing accounted for 55.9 percent of mortgage applications compared to 53.6 percent in the prior week.

The fixed-rate mortgage index is 2.0 percent lower in the October 17 week. It is 20.3 percent lower than four weeks ago and 39.8 percent higher than this week last year. The adjustable-rate mortgage index is 16.1 percent higher and is 1.2 percent lower than four weeks ago and 161.9 percent higher than a year ago.

The contract rate for a 30-year fixed-rate mortgage is 6.37 percent in the current week. This is 5 basis points lower than the prior week, 3 basis points higher than four weeks ago, and 15 basis points lower than a year earlier. The contract rate for a 5-year adjustable-rate mortgage is 5.55 percent in the week. This is 8 basis points lower than the prior week, 2 basis points higher than four weeks ago, and 57 basis points lower than a year earlier. In the October 17 week, adjustable-rate mortgages accounted for 10.8 percent of mortgage applications compared to 9.3 percent in the prior 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.