Wednesday, October 01, 2008

Reading Rates: MBA Application Survey – October 01 2008

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 1 basis point since last week to 6.07% while the purchase application volume decreased 11.0% and the refinance application volume slumped a whopping 35.0% compared to last week’s results.

It’s important to note that, in the wake of the conservatorship of Fannie Mae and Freddie Mac, the average interest rate on an 80% LTV 30 year fixed rate loan initially dropped significantly but has since climbed to the lower end of the range seen throughout 2007.

The interest rate for an 80% LTV 1 year ARM, on the other hand, remains significantly elevated now resting 112 basis points ABOVE the rate of an average 80% LTV 30 year fixed rate loan.

Also note that all application volume values reflect only “initial” applications NOT approved applications… i.e. originations… actual originations would likely be notably lower than the applications.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).

The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).