How will consumption shape investments after the payrolls report? (Part 12 of 12)
What is the Mortgage Bankers Association Purchase Applications Index?
The Mortgage Bankers Association’s, or MBA’s, weekly Purchase Applications Index for the week ended April 4 will be released on Wednesday, April 9.
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, while a decrease in index value implies the opposite.
Highlights from last week’s report
Mortgage applications volume declined 1.2% for the week ended March 28. Mortgage purchase applications rose 1% week-on-week on a seasonally adjusted basis, but declined 17% on an annual unadjusted basis, for the week ended March 28. Refinancing applications fell 3% week-on-week, and the ratio of refinancing to total mortgage applications also declined, from 54% to 53%—the eighth straight weekly decline. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or lower) stayed put at 4.56%.
What does the index reading mean for fixed income markets?
The MBA’s weekly report gives valuable clues as to trends in the housing market—especially for homebuilders like PulteGroup (PHM) and Lennar (LEN). The iShares U.S. Home Construction ETF (ITB), which tracks the performance of the Dow Jones U.S. Select Home Construction Index, includes positions in both PulteGroup (PHM) and Lennar (LEN).
An increase or decrease in this indicator would also impact ETFs like the iShares Barclays MBS Fixed-Rate Bond Fund (MBB) and the Vanguard Mortgage-Backed Securities Index Fund (VMBS). Both MBB and VMBS track the Barclays Capital U.S. MBS Index, which measures the performance of the investment-grade fixed-rate mortgage-backed pass-through securities of GNMA, FNMA and FHLMC.
To read more about the relationship between mortgage rates and Treasury securities, read the Market Realist series Do mortgage rates follow movements in Treasury yields?
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