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The overriding theme for the 6% market correction is largely focused on the pace of the recovery and now more investors are focused on the ability of Q2 earnings guidance to sustain the rebound seen in Q1.  Additionally, the impact of rising unemployment on the consumers' ability to make mortgage payment and overall disposable income is creating fresh concerns for weak consumer-related trends.   

We learned this morning that mortgage applications in the U.S. rose last week while refinancing applications jumped the most since March. Additionally purchases climbed to the highest level in three months.   This week's results include an adjustment to account for the July 4th holiday.

The Market Composite Index (a measure of mortgage loan application volume) was 493.1, an increase of 10.9% week-over-week on a seasonally-adjusted basis.  While this news is good, the twelve-week moving average fell 6.4% from the previous week's reading of 752.3.

The refinance share of mortgage activity increased to 48.4% of total applications from 46.4% the previous week. Meanwhile, the adjustable-rate mortgage (ARM) share of activity increased to 4.4% from 4.3% of total applications from the previous week.  The average interest rate for 30-year fixed-rate mortgages remained unchanged at 5.34%. 

Undoubtedly the decline in home prices has brought more homes within reach of more buyers. Incrementally this creation of new demand appears positive, yet with  unemployment at a 26 year high and borrowing costs edging back up, any further improvement in housing will be further down the road. As always, we return to our mantra: "less bad" is not the same thing as "good".

Howard Penney

Managing Director