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Why Mortgage Applications Fell after a Spike on October 9

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Mortgage applications fell 27.6% for the week ending October 9

A week after the implementation of a regulatory change, mortgage applications fell 27.6% for the week ending October 9 as against an increase of 25.5% in the previous week. The iShares US Real Estate ETF (IYR) has fallen 0.14% over the past week as of October 14. Also, REIT stocks Simon Property Group (SPG) and Equity Residential (EQR) were down 0.06% and 0.27%, respectively, for the same period.

Mike Fratantoni, MBA’s (Mortgage Bankers Association) chief economist, explained in a press release, “Application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity. The prior week’s results evidently pulled forward much of the volume that would have more naturally taken place into this week. Purchase volume for the week was below last year’s pace, the first year over year decrease since February 2015, while refinance volume dropped sharply even with little change in mortgage rates.”

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Mortgage rates at lower levels fail to encourage purchase and refinancing

MBA mortgage applications consider the number of US citizens applying for mortgage applications to buy homes or to refinance existing loans. The rate on the 30-year fixed-rate mortgages averaged 4.0% for the week ending October 9, which didn’t change from the prior week. Though it is the lowest rate in the last five months, the refinance index fell 23%, and the purchase index plummeted 34% from the last week.

The iShares U.S. Home Construction ETF (ITB) has fallen due to declining mortgage applications. The ITB is down 2.5% over the past week as of October 14. Home construction stocks such as DR Horton (DHI) and Lennar Corporation (LEN) rose 4.2% and 2.8%, respectively, over the same period.

From October 3 onwards, lenders are supposed to use new integrated forms under the Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974. The new disclosures aim to help consumers understand the cost and risk factors related to the mortgage loans. With the ongoing revamp process by mortgage lenders, the applications have taken a nosedive in the week ending October 9. However, the continued low mortgage rates may be able to help revive the housing demand going forward.

Like housing, industrial production data is also important to understand the business cycle and growth profile of the country. In the next article, we’ll cover Eurozone industrial production.

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