This is a graph of the Mortgage Bankers Association Mortgage Application Purchase Index since August 2004. One of the things this shows is that the massive increase in mortgage applications being reported by the media isn't a function of purchases but an attempt by many to refinance and get lower rates.
There are several issues with the purchase index, it only encompasses an estimated 50% of the market because not all lenders participate. So major players can enter or exit the market and not be represented by the index. The index also doesn't dedupe applications so a person applying to multiple places will be counted several times in the index. At times of market of major market fluctuations this can cause the chart to show more activity than eventually comes through on the closed home sales numbers.
2 comments:
You'd be surprised how many people make judgment calls on the health or status of the market based of partial data like this. By partial I mean what you stated in your article...partial participation.
Scary.
Awhile ago, Alan Greenspan called the application index the most important data series during a hearing. He clearly was unaware of its shortcomings.
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