Mortgage applications increase
Applications for US home mortgages rose in the week ended June 5, according to data released on June 10 by the MBA (Mortgage Bankers Association). The association’s seasonally adjusted index measuring mortgage application activity increased by 8.4% that week. The index includes both home purchase and refinancing demand.
The rise is partly attributed to a lower index value in the previous week. Mortgage applications decreased by 7.6% in the week ended May 29 due to the Memorial Day holiday.
The MBA’s survey is based on applications for residential mortgages. It covers more than 75% of all US retail residential mortgage applications. Commercial banks, mortgage bankers, and thrifts respond to the survey. The above graph shows the MBA Market Composite Index. It is a measure of the volume of mortgage loan applications.
Home purchase demand increases
The MBA’s index of refinancing applications rose by 7%, while the number of loan applications for home purchases increased by 10% over the previous week. A rise in applications for home purchases leads to an increase in home sales. The refinancing portion of total mortgage activity remained unchanged at 49% of applications.
In a June 10 press release, Mike Fratantoni, the MBA’s chief economist, said, “Mortgage application volume rebounded strongly in the week following the Memorial Day holiday, indicating that the holiday had a larger impact on business activity than originally assumed. Comparing volume over the past two weeks, purchase activity is up over 6 percent, while refinance activity is down 5 percent. Strong job gains in May and initial signs of wage growth are supporting the purchase market.”
Impact on banks
More applications indicate higher lending in the residential segment, a positive indicator for banks active in this space.
All big banks, including J.P. Morgan (JPM), Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB), PNC Financial (PNC), and BB&T (BBT), have significant residential real estate portfolios. Growth in this segment will impact these banks as well as the Financial Select Sector SPDR Fund (XLF). The banking sector makes up ~37% of XLF.