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Mortgage rates climb. Really?

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(Read caption) This chart shows the average rate of 15- and 30-year mortgages over the past two years. Rates continue to trend lower and lower, but they showed an increase last week.

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The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

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The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) jumped 12 basis points to 4.06% since last week while the purchase application volume declined 1.0% and the refinance application dropped 9.3% over the same period.

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With rates trending ever lower, the economy weak and the FOMC members remaining dovish, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).