Bailout

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume increased 0.3 percent on a seasonally adjusted basis from one week earlier. ...

The Refinance Index increased 0.9 percent from the previous week and the seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier.
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The average contract interest rate for 30-year fixed-rate mortgages increased to 4.92 percent from 4.88 percent, with points decreasing to 1.08 from 1.17 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Note: In the past the MBA index was somewhat predictive of future sales - and was a favorite indicator of Alan Greenspan, but it has been questionable for some time. The increase in 2007 was due to the method used to construct the index: a combination of lender failures, and borrowers filing multiple applications pushed up the index in 2007 even though activity was actually declining. Recently there has been a substantial number of cash buyers, so the MBA index missed the strength of the recent existing home sales increase.

Although existing home sales will be very strong in November (as buyers rushed to beat the initial tax credit deadline), the indicators for residential investment have been mostly flat to weak in Q4. This includes the NAHB housing market index, housing starts, new home sales and the MBA purchase index.

Although the FOMC statement today will probably be more upbeat on the economy than in November, the statement on housing will probably have a more negative tone. Last month the FOMC said: "Activity in the housing sector has increased over recent months." That is not true now except for existing home sales that are largely irrelevant¹ for residential investment and the economy.

¹ Existing home sales generate some fees and commissions, but home turnover does not add to the value of the housing stock. Some people spend money on improvements and furnishings after buying a home, but this has probably been limited recently because of the types of buyers (mostly first time home buyers with minimum downpayments) and cash-flow investors. Neither group will be adding a pool or other major improvement any time soon!