OVERVIEW ~ May 17 through May 21 ~ The Dow Jones Industrial Average (DJIA) edged down from its Monday closeuntil Friday, when it rose 1.25% above the prior day’s 3.6% decline. The official explanation for Thursday’s large decline was that investors were worried about world credit markets. Many investors are uncertain about the markets’ direction, and thus the markets are vulnerable, tending to follow negative moves in a day’s trading. The 10-year Treasury note yield edged down all week, as did the cost of an ounce of gold. Few issues gained in value this week (from shares of stock to barrels of oil) and, for the moment at least, there was a continuing trend toward lower prices.
FOCUS ~ One of the more striking sets of indicators from the week was the Mortgage Bankers Association (MBA) Mortgage Applications Index, which is followed in each issue of this update.
The History: Since 1990, the MBA has surveyed its 3,000 members for the number of mortgage applications they receive each week, covering more than 40% of the residential mortgage market.
The index tracks applications, but does not report on the number of actual resulting originations. Not all applications necessarily become loans, especially if borrowers shop for loans by applying for several at once. Thus, though we look to this index to provide a sense of whether housing purchases may pick up, as well as to gauge refinancing activity, there is not necessarily a correlation between higher application figures and larger sales volume.
Recent Activity: The two major components of the index rarely diverge as much as they did in the week of May 14th’s reading (down 27.1%). The volume of refinancing applications is expected to rise when interest rates fall because those seeking a refinancing loan quite naturally want the lowest possible rate. The purchase money applications (for loans with which to buy a home) are far less affected by interest rates, though they are certainly not immune to their movements. But this plunge was caused largely by the fall-off in applications after the federal homebuyer tax credit programs expired.
Viewed closely, the decline is quite comparable to that of October-November 2009, when the first tax credit program was set to expire. The amount of this decline therefore shouldn’t be much of a surprise. Whether (and how soon) the real estate market can regain its most recent level of strength, though, remains to be seen.
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