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Index Offers Ray of Hope for Feeble Housing Market

November 12, 1991|From American Banker

NEW YORK — A newly released index of mortgage activity offers a glimmer of hope that the nation's sagging market for housing could soon rebound.

The index, calculated by the Mortgage Bankers Assn. of America, measures the volume of applications for loans to buy houses. Since mid-September, it has climbed more than 8%, attaining its highest level since May.

Economists said the rise reflects consumer enthusiasm about the lowest mortgage rates since the late 1970s.

The index, which has been calculated for two years but has only recently been made available to the public, generally foreshadows changes in home sales by one or two months.

"This is a little bit of good news," said David Berson, chief economist of the Federal National Mortgage Assn. "It's an indication that sales are starting to turn around."

Berson said that home sales probably will rise this month and that they probably rose in October. Data on October home sales will be announced at the end of this month.

But Berson and others cautioned that housing still has a tough battle to overcome the effects of high unemployment and low consumer confidence in the economy.

In September, sales of new homes fell 12.9% from August, the largest drop in two years. Sales of existing homes also fell steadily in July, August and September.

The declines were viewed as alarming by many economists who counted on housing to lead the country out of recession.

The Mortgage Bankers Assn., a trade group, began calculating application levels in January, 1990, working from a weekly survey of 17 mortgage banking companies.

Although the index's track record is short, Berson says, the measure may well be a useful forecasting tool. "It seems to be a pretty good leading indicator of where sales are moving," he said.

For the week ended Oct. 25, the latest reading, the index stood at 101.4, up from 93.5 the week ended Sept. 13.

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