Mortgage Applications Increase as Refinancing Jumps

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By Maulik Mody

Mortgage applications increased for the week ended Oct 8 increased as record low rates caused a rise in refinancing. The Mortgage Bankers Association’s index gained for a first time in six months, rising 14.6% as refinancing increased 21%.

The gain was a slight positive for the economy, as increased refinancing will decrease consumers’ monthly mortgage payments, allowing them to spend more, directly boosting the economy. More readings in this territory might indicate that the recovery will stabilize, but this may not indicate a recovery in the housing market. This will not happen unless the increase in applications are caused due to increase in mortgages taken for buying home, which remain at all time low due to high unemployment. The home purchases component of the index fell 8.5% after a gain of 9% last week. The average rate on a 30 year fixed rate mortgage fell further to 4.21%.

The U.S. Import Price Index fell by 0.3% in September, indicating that the cost of imports decreased more than forecasted. Prices fell for after three months, and the year over year increase now stands at 3.5%, which is at the lowest level in a year. This adds to the Feds concern about slowdown in inflation, which the Fed addressed in its last meeting. The weakening of the dollar seen in the last few months will increase the cost of raw materials, and this makes some believe that the risk of deflation is low.

Breaking down the import index, prices of goods imported increased 0.3% excluding petroleum. Food and beverages saw a mid increase of 0.8% after a 2.1% gain in August, while cost of industrial supplies fell 1.3%. Fuel and lubricant prices fell the most, retreating 3.1% after a 1.7% gain in August.

Stocks were trading higher as investors grew confident that the Fed will take steps to bolster the economy. The S&P advanced 1.1% to 1182, as the NASDAQ was trading 1.2% higher at 2246. Treasuries slipped lower as the yield on the benchmark 10-Yr Bond gained 4 basis points to 2.47%.

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