Mortgage Applications, Factory Orders

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights mortgage purchase applications and factory orders.

• The number of people submitting mortgage applications for a home purchase eased over the holidays even after adjusting for the normal seasonal slowdown.
• Activity in the final week of December was 164 (index figure) compared to 190 to 200 range in late November and early December.  This suggests a potential loss of momentum to home sales.  But be mindful that the seasonal adjustment factors are very tricky over the holidays and that applications are not directly related to home sales because there is no information on the actual approval rates.  Moreover about one-third of all home sales recently have been all-cash deals, bypassing the mortgage application process all together.
• Further, mortgage purchase applications data are a very useful gauge of the week-to-week directional trend, but tend to have substantial drifts over a long period of time.  From 1990 to 2005, purchase applications quadrupled, when home sales only doubled.  From 2005 to today, applications fell by nearly 65 percent while home sales fell by 40 percent.  Interestingly though, current mortgage application activity is about at 1997 levels – just as is the case for home sales.
• Separately, factory orders climbed 1.8% in November.  Ramping up in production means more hiring.  The U.S. economy is steering far away from recessionary conditions plaguing the Europe zone.  This report further confirms that the fourth quarter GDP growth is likely to be 3.5 percent.