Strong Mortgage Data Draws Skeptics

By Kelly Evans, The Wall Street Journal

RISMEDIA, July 16, 2007—A rare piece of positive news about housing is raising some skeptical eyebrows among economists.

The Mortgage Bankers Association survey of weekly mortgage applications showed a seasonally adjusted 3.8% increase last week in applications for mortgages to buy homes, up 7% from the same week last year.

Applications have been rising steadily since February, a lone indicator of looming strength in the housing market amid a sea of pessimistic news. Measures of home sales have been sinking.

“We don’t think it’s a good indicator,” said Lehman Brothers economist Michelle Meyer . She said part of the reason is because the survey doesn’t include subprime lenders, those who lend to borrowers with shaky credit histories. Those lenders have experienced the largest pullback in mortgage activity.

Also, the survey doesn’t tally rejections, which are believed to have increased because of tighter lending standards.

Abiel Reinhart , a J.P. Morgan Chase economist, said he incorporates the MBA survey with data on pending home sales when putting together his forecast of home sales, but puts more weight on the pending home sales.

Jay Brinkmann , the MBA’s vice president of research and economics, defends the association’s survey. “Some of the criticism I’ve seen lately from Wall Street firms is simply ignorant,” he said.

He said there is a “considerable” timing lag between the purchase application and the sale itself, so the recent strength in applications hasn’t yet shown up in the sales data.