Released on 6/17/2009 7:00:00 AM For wk6/12, 2009
Purchase Index - Level 270.7 261.2
MBA's purchase applications fell back a disappointing 3.5 percent in the June 12 week to 261.2. The refinance index fell back very sharply, down 23 percent to 2,605.7. Both reflect the dampening effect of rising interest rates along with still limited credit availability. Mortgage rates dipped back in the latest week but still remain much higher than a month ago, about 75 basis points higher for 30-year loans which averaged 5.50 percent in the latest week. Yesterday's strong gains in housing starts were a big plus, but sagging mortgage applications and indications of limited buying interest in Monday's housing market index point to disappointing home sales data at month end.
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
Why Investors Care
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 carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies