Economist's Commentary: July 9, 2008

Quick Take on the Economy: July 9, 2008

By Danielle Hale, Research Economist

The Mortgage Bankers Association (MBA) Weekly Mortgage Applications Survey, released today, shows that in the week ending July 4, 2008 mortgage loan application volume increased 7.5 percent on a seasonally adjusted basis from a week earlier. This includes an adjustment to account for the Independence Day holiday.
The volume of Government purchase mortgages (mostly FHA) increased 19.8 percent on a seasonally adjusted basis. This continues the trend of increasing reliance on government financing.
Mortgage rates in the survey also increased slightly.

Yields on the 10-year Treasury bond have fallen somewhat since the last meeting of the Federal Open Market Committee two weeks ago when the group decided to end its Fed Funds rate cuts. Yesterday’s yield was 3.91% compared to 4.10% on June 24.
This moderate decline could mean that market fears of inflation are diminishing; however the spreads between inflation protected and nominal treasury coupons—another measure of inflation—have still not come down.

Government mortgages may involve more paperwork, but are increasingly the vehicle consumers are relying on to finance the purchase of a home.
Mortgage rates tend to mirror broad movements in the 10-year Treasury bond. The slight decline in Treasury yields will probably not stem increases in mortgage rates; now is still a great time to lock in a mortgage rate.

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