Disappointing Inflation Helps The Fed

Disappointing Inflation - Big MBA Applications Report

Before getting into Disappointing Inflation, let's review the MBA Applications. MBA applications report showed huge growth numbers that were shocking at first glance. In the week of June 7th, the composite index was up 26.8% weekly compared to 1.5% growth in the previous week. 

Growth was high mostly because of the huge burst in refinance activity. Growth went from 6% to 47% weekly. That’s because of the recent decline in mortgage rates. In the week of June 6th, the 30 year fixed mortgage rate fell from 3.99% to 3.82% which was the biggest one week drop since March 28th. 

Mortgage rates are the lowest since September 14th, 2017. This will help the housing market which will already have strong yearly growth in the 2nd half of this year because of the weak comparisons from late 2018.

Keep in mind the context of this refinancing activity to understand how weekly growth was so high. As you can see from the chart below, refinancing is near historic lows. This big weekly burst doesn’t look so big when you see this chart. 

Refinancing activity is low because up until recently rates were relatively high compared to the past few years. Many home buyers refinanced in 2016 when rates were lower. There was no need to refinance in 2018 and early 2019.

(Click on image to enlarge)

Purchase applications data is far more valuable when studying the health of the housing market

It’s also notable how many homeowners will save money on their monthly mortgage payment when they refinance at these newly low rates. That will increase their disposable income. Homes will also be more affordable to new buyers. Soon home price growth will fall below wage growth if the recent trends continue. 

Specifically, weekly wage growth in May was 2.8% and the March Case Shiller national home price index was up 3.7%. It’s possible that if price growth falls further in April and May that weekly earnings growth is already higher than home price growth.

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