Must-know: Why are mortgage purchase applications down?

Market Realist

Will this week’s releases impact the Fed’s March FOMC meeting? (Part 9 of 12)

(Continued from Part 8)

Mortgage purchase applications

The Mortgage Bankers Association’s, MBA, Purchase Applications Index will be released on Wednesday, March 4. The index is a weekly measurement of home loan applications that bases its results on a sample size of 75% of mortgage applications from around the country. A leading indicator of the housing market, it’s reported as an increase or decrease from the previous week’s reading. An increase in index value signifies an increase in the demand for housing.

What did last week’s Index reading indicate?

According to the reading for the week ended February 21, mortgage applications declined 8.5% on a seasonally adjusted basis and declined 7% on an unadjusted basis from a week earlier. “Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it,” said Mike Fratantoni, the MBA’s chief economist.

What does the index reading mean for fixed income markets?

Besides indicating an increase or decrease in housing activity, the index gives guidance across other segments of the economy—especially for construction and home furnishing companies. An increase in this indicator is a major bellwether that the overall economy is improving, and this would impact all sectors, causing stock prices to rise. And (other factors remaining constant) the Fed would cease its policy of economic stimulus, which would cause bond prices to decrease and interest rates to rise. A decrease in this index would imply the opposite.

To see how Americans feel about the state of the economy, move on to Part 10 of this series.

Continue to Part 10

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