Purchase applications hit new low

Every week, the Mortgage Bankers Association puts out weekly data on mortgage applications. The numbers track two categories of apps -- apps for purchase mortgages and apps for refinance loans. In the most recent week ended Oct. 27, the purchase index slumped 1.8%. The absolute value of that index -- 375.6 -- is now at a cycle low.

In all fairness, the most recent low in late September was 375.9. So we haven't convincingly plunged to new depths. But I believe this DOES prove that all the talk that housing has definitively bottomed is premature.

The fact is, the MBA says 30-year fixed mortgage rates made their most recent peak at 6.86% the week of 6/23. Since then, rates have dropped to 6.24% -- a decline of 62 basis points, or 9%. The purchase application index, however, peaked the week of 7/7 at 425. Since then, it has dropped 11.6%. Measure the index from the week of 6/23 (which was one "weak week" sandwiched between some strong ones), and you still get a 3.4% decline in purchases. In other words, falling rates are NOT prompting a surge in buying yet.