Holiday Shortened Work Week Distorts Loan Application Data

The Mortgage Banker's Association today released the Weekly Survey on Mortgage Application Activity for the week ending November 27, 2009.

The Mortgage Banker's application survey covers over 50% of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. A rising trend of mortgage applications indicates home buying interest is increasing, a positive for the housing industry and economy as a whole. Furthermore, in a low mortgage rate environment, a trend of increased refinance applications implies consumers are seeking out a lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items...or just an opportunity to pay down other debts like credit cards and car loans.

In last week's report, new loan application activity decreased 4.5% as the Refinance Index fell 9.5% from the previous week. Offsetting some of the overall decline was a 9.6% increase in purchase applications. However, as refinance loans made up 71.7% of all mortgage applications, the  rise in purchase activity was not large enough to counterbalance the overall Market Composite Index. The MBA also reported that the average rate on a conventional 30 year mortgage moved 0.01% lower to 4.82%.

In this week's release, which reported on the holiday shortened week ending November 27, new loan application activity increased 2.1%. The refinance index was 1.7% higher and the Purchase index was up 4.1%. It is very important to note that these results are adjusted for the Thanksgiving holiday. On an unadjusted basis, the Market Composite Index was 29.3% lower.

From the Mortgage Banker's Association...

The Market Composite Index, a measure of mortgage loan application volume, increased 2.1 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 29.3 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index is up 0.2 percent.

The Refinance Index increased 1.7 percent from the previous week. The four week moving average is up 1.5 percent for the seasonally adjusted Refinance Index. The refinance share of mortgage activity increased to 72.1 percent of total applications from 71.7 percent the previous week.

The seasonally adjusted Purchase Index increased 4.1 percent from one week earlier.  These results include an adjustment to account for the Thanksgiving holiday.  The unadjusted Purchase Index decreased 30.4 percent compared with the previous week and was 34.9 percent lower than the same week one year ago. The four week moving average is down 2.0 percent for the seasonally adjusted Purchase Index

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.79 percent from 4.82 percent, with points decreasing to 1.00 from 1.19 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year fixed-rate observed in the survey since the week ending May 15, 2009.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.27 percent from 4.32 percent, with points increasing to 1.33 from 1.05 (including the origination fee) for 80 percent LTV loans.  This is the lowest 15-year fixed-rate ever recorded in the survey, with the previous low being 4.32 percent recorded the previous two weeks and in October 2009.

Anecdotal evidence suggests that demand for home loans remains slow regardless of record low mortgage rates. Furthermore, mortgage underwriting guidelines continue to tighten, which implies, given weakness in the labor market, that purchase and refinance activity will continue to move sideways at anemic levels.