Mortgage Apps: 7% Psychological Barrier

Bottom Line:  The 7% level on the average 30-year fixed-rate mortgage has proven to be a remarkable barrier to mortgage activity. Rates fell below it, averaging 6.96% last week, and activity jumped. While we should caveat that seasonal adjustments have caused volatility, and the level of both purchase and refinancing remains historically low, there is hope for housing if mortgage rates can stay at or below 7%. With secondary market spreads to Treasuries tightening modestly and the yield curve stabilizing, we may see a tacit target for the mortgage rate of just below 7% make it into the discussion of Fed policy. Don't count on it today, but it is something to consider, as most housing metrics suggest the sector could turn from a headwind to a tailwind for growth in the 2nd half.The MBA Mortgage Application Index ROSE 7.2% to 209.0, BELOW the 13-week average of 214.0 and -32.1% BELOW the year-ago level. Non-seasonally adjusted the index ROSE sharply, UP 17.5%. The Purchase Index ROSE 7.6% to 163.0, BELOW the 13-week average of 165.0 and -27.5% BELOW the year-ago level. The Refinancing Index ROSE 6.0% to 434.0, BELOW the 13-week average of 460.0 and -41.0% BELOW the year-ago level. The effective (adjusted for points paid) 30-year mortgage rate FELL slightly, DOWN -4bps to 6.96%, ABOVE the 13-week average of 6.75% and 19bps ABOVE the year-ago level. Current coupon yields in the secondary market were down -5.0 bps last week, closing at 5.46%, and were up 7.0 bps this week through Tuesday.