Why the MBA Purchase Applications Index is a major bellwether
MBA Purchase Applications
The Mortgage Bankers Association’s (the MBA’s) Purchase Applications Index is a weekly measurement of home loan applications that bases its results on a sample size of 75% of mortgage applications from around the country. A leading indicator of the housing market, it’s reported as an increase or decrease from the previous week’s reading. An increase in index value signifies an increase in housing demand.
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Besides indicating an increase or decrease in housing activity, it also gives guidance across other segments of the economy—especially for construction and home furnishing companies. As buying a home is one of the strongest consumer confidence indicators, and since consumption comprises over 70% of the economy, an increase in this indicator is a major bellwether suggesting that the overall economy is improving. This would impact all sectors, causing stock prices to rise and the Fed to cease its policy of economic stimulus, which would cause bond prices to decrease and interest rates to rise.
The Mortgage Bankers’ Association Purchase Applications Index was down 2.0% for the week ending February 12, which may have been due to bad weather keeping potential buyers at bay.
While mortgage purchase applications are a leading indicator for the economy, some indicators due to release this week coincide with economic and GDP growth, as we’ll see in the next part of this series.