A funny thing happened on the way to the lender's office

Sorry -- that's a lame attempt to devise a play on "A funny thing happened on the way to the forum." I can't help myself; it's early and I've already downed something like 40 ounces of diet, caffeine-laden cola.

Anyway, I mentioned in a post a while back that I was closely watching the interplay of mortgage rates and purchase mortgage demand. Specifically, I commented on how the Mortgage Bankers Association's purchase mortgage application index didn't seem to be responding to the decline in mortgage rates. 30-year fixed rates peaked at 6.86% in late June, according to the MBAA, and fell all the way to 6.18% in the week of September 22. That's a decline of 9.9%. Do you know what the purchase index has done in the same time frame? DROPPED from 389 to 375.90, or 3.4%. In fact, the latest reading ties the cycle low reading from the end of August.

Maybe it's nothing. Maybe things will turn around soon. But if purchase apps continue to slump DESPITE a decline in interest rates, it could be a signal this bust has more to go. I'd also note that lumber futures dropped yesterday to a fresh low -- 255.50 on the continuous contract. The only market-based indicator signaling a turn in the market's prospects is housing/mortgage stocks, which have rallied in recent weeks. Are the housing stocks "right?" Is the data "right?" Is the lumber market "right?" We'll see ...