MBA (Mortgage Bankers Association of America) Purchase Applications include all mortgage applications for the purchase of a single-family home. The index is comprehensive as it encompasses indices for composites, purchases, refinancing, fixed mortgage rates, and adjustable mortgage rates.
The Purchase Index is a leading indicator of single-family home sales and housing construction as majority of home buyers usually apply for a mortgage before purchasing a home. However, the index not only provides a gauge for housing demand, but also economic strength. Increase in the index shows that people are in good financial positions to purchase new homes. Furthermore, this index has a powerful multiplier effect through the economy. The multiplier effect can be seen from the home builder side and also the home buyer side. Each time a new home construction begins, it will lead to more construction jobs and will generate more income for the home builders. Increase in income will lead to more consumption opportunities. As for the home buyers, consumer spending will also increase since they will purchase furniture and electrical appliances to furnish the new home.
Since the financial markets are heavily influenced by the economic backdrop, housing constructions have a direct bearing in the stock, bond and commodities markets. Businesses that will be affected by the trends in the MBA purchase applications are home builders like Ryland Group (RYL) and Standard Pacific Lp (SPF), mortgage lenders like Countrywide Financials and Accredited Home Lenders Holding (LEND), and home furnishing companies like Leggett & Platt (LEG) and Acuity Brands (AYI).