LIVE MARKETS-Mortgage rates edge cooler, loan demand leaps

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MORTGAGE RATES EDGE COOLER, LOAN DEMAND LEAPS

The cost of financing home loans cooled down a bit last week, which lured would-be borrowers from the sidelines, according to the Mortgage Bankers Association (MBA).

The average 30-year fixed contract rate USMG=ECI shed 5 basis points to print at 6.84%.

As a result, applications for loans to purchase homes USMGPI=ECI and to refinance existing mortgages USMGR=ECI both jumped by 11.1%.

Mortgage rates tend to ape benchmark Treasury yields, which moved lower last week amid a spate of mixed data.

"The economic news last week included a negative reading for first-quarter GDP growth and further signs of contraction in the manufacturing sector, mixed with a solid employment report for April," writes Mike Fratantoni, MBA's chief economist. "The net impact on mortgage rates was mostly downward but just back to levels from early April."

The average 30-year fixed rate is now 34 basis points cooler than it was during the same week last year.

Over the same time period, purchase and refi demand have improved by 12.9% and 51.0%, respectively.

Home purchase loan demand is considered to be among the housing sectors leading indicators, but all economic data are, to some extent, backward-looking.

The stock market, on the other hand, is resolutely forward-looking, reflecting where investors expect the sector to be six months to a year from now.

Through that lens, the view's less sunny.

For much of the past year or so, the S&P 1500 Homebuilding index .SPCOMHOME and the Philadelphia SE Housing index .HGX handily outperformed the broader market.

That relationship began to reverse in late November.

The chart below measures the indexes 12-month performance. Over that time the SPCOMHOME and HGX are down 19.0% and 11.0%, respectively, falling well short of the S&P 500's 8.1% advance over the same time period.

(Stephen Culp)

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