MBA data shows refi plunge, lowest purchase activity in 8+ years

The latest Mortgage Bankers Association figures show both refinance activity and home purchase activity falling sharply. The refinance index plunged 24.5% on the week to 600.6, its lowest level since late November. Meanwhile, the home purchase index dropped 9.8% to 235.9.

That is the lowest level for purchase loan applications going all the way back to the final week of December 2000. If you exclude that week, which appears to be an anomalous spike lower, (the MBA figures sometimes show large swings around the holidays due to the difficulty of seasonally adjusting the figures at that time of year), you have to go all the way back to February 1999 to find a weaker reading.

A couple of things are going on here:

First, the roll out of all the recent bailouts has spooked investors in the bond market. They are concerned about the enormous cost of both the economic stimulus package and the potential bank bailout. They see the government may need to raise a net $2 trillion to $2.5 trillion this year via sales of Treasury bills, notes, and bonds. So they've been selling Treasuries. That drives prices lower and yields higher. And since Treasury yields are used as a benchmark to set other rates, we've seen some upward pressure on mortgage costs.

Second, the economy continues to deteriorate. We've lost almost 600,000 jobs EACH month since November. Consumer confidence has continued to deteriorate. And home prices have continued to decline. All of those factors are spooking potential home buyers, and keeping many of them on the sidelines. Cheap financing and home buying tax credits from Washington may spur some activity. But the underlying housing market fundamentals remain extremely weak. So mortgage activity will likely stay subdued as well.