MBA Purchase Index
What Is a MBA Purchase Index?
The MBA Purchase Index is The Mortgage Bankers Association's week after week measurement of cross country home loan applications in view of a sample of around 75% of U.S. mortgage activity.
As opposed to its name, the MBA Purchase Index doesn't measure the number of homes purchased or mortgage loans closed. All things being equal, it is essentially a report of mortgage loan applications, so the genuine number of loans and sales that were settled will shift from the MBA Purchase Index. Notwithstanding, analysts consider the MBA Purchase Index to be a leading indicator of the housing market and can be especially useful for real estate investors dealing in mortgage-backed securities.
Understanding the MBA Purchase Index
The MBA Purchase Index is a leading indicator of home sales by four to about a month and a half, implying that it is a predictor of housing activity, however forecasts may not demonstrate accurate. Since real estate sales will quite often be seasonal, the MB Purchase Index is adjusted seasonally also.
Housing market analysts and home builders utilize the index to forecast new and existing home sales. Lenders use it to measure whether they are getting an adequate number of applications given overall application activity. The index is likewise viewed as a leading indicator of mortgage prepayment, which is important for investors in mortgage-backed securities, including REITs. The MBA Purchase Index is reported as a percentage increase or reduction from the previous week.
Previous research has indicated that the MBA purchase index can be a helpful, yet imperfect, measure all alone. Its utility is for the most part derived in making close term forecasts. In certain cases, for example, the colder time of year of 1995-1996, the index was an inaccurate indicator of housing market activity. This was basically due to a mix of extreme weather patterns which prompted homebuilders deferring construction activity and an unforeseen change in interest rates.
Illustration of the MBA Purchase Index
For instance, a news report could declare that the MBA Purchase Index rose 2% for the week ending June 21, which gives an inside take a gander at the number of potential home sales that were recorded for that specific week. Spring and summer will in general be a well known time for real estate as most housing market activity happens from spring through fall, with a top in the mid year.
The relationship between the activity levels shown by the index and expected activity levels for the season educates analysts regarding the strength or weakness of the housing market. The week after week reports on the MBA Purchase Index portray the factors that are affecting mortgage application activity, for example, interest rates, home prices, credit availability, and the number of all-cash homebuyers. Since all-cash purchasers make up a huge part of housing market activity, the MBA Purchase Index is said to downplay housing market activity, especially when you consider how rich real estate investors purchasing luxury properties or those buying up low price point properties with cash could change the market.
Features
- The MBA Purchase Index is a week after week report of mortgage loan applications in light of a sample of 75% of U.S. mortgage activity.
- Previous research has indicated that the index is a valuable however imperfect measure in the long term.
- Analysts believe the report to be a leading indicator of housing market activity.
