Interest Rate Roundup

Wednesday, November 01, 2006

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.


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