Analyzing the effects of last week's important indicators on ETFs (Part 9 of 10)
The Mortgage Bankers Association’s or MBA weekly applications survey offers a comprehensive analysis of the mortgage industry. The index was created in 1990, and since then, it has been a leading indicator of housing and mortgage finance activity.
As per the data released by the MBA, applications for the seasonally adjusted index of mortgage application activity fell sharply, by 8.5% to 348.5 for the week ended February 2, 2014. Both new purchases and the refinancing index were down by 4% and 11%, respectively. The decline was in line with the fourth quarter softness witnessed in U.S. home prices. However, U.S. home prices were still positive. Analysts expect the holiday-shortened week to impact mortgage applications.
The MBA compiles 75% of the U.S. retail residential mortgage applications. The purchase applications index measures applications for mortgage lenders. This is a leading indicator for single-family home sales and housing construction. By tracking economic data such as the MBA purchase applications, investors can gauge demand for housing, which also has a ripple effect on other sectors—including the labor market, retail sector, and construction sector. Buying a home is a major indicator of consumer spending, which in turn indicates the direction of economic growth. A rise in the economy leads to a positive impact on stock prices, which rise as investor sentiment swells and leads bond prices to decline.
Increases and decreases in MBA applications also have a major impact on the margins of homebuilders and realtors operating in the country.
The U.S. equity market was mixed, with the Dow moving higher in initial reaction to the report, while the S&P 500 was mostly neutral on the day of the release. The bond market was slightly up on the same day.
Browse this series on Market Realist:
- Part 1 - Why last week’s Chicago Fed National Activity Index was negative
- Part 2 - Why hints of spring didn’t entice consumer retail spending
- Part 3 - Why are we seeing a fall in monthly US retail sales?
- Mortgage Loans