This morning, the Mortgage Bankers Association reported that mortgage purchase applications declined about "5.1 pct for the week ended Jan. 27. The index fell to 626.8 from 660.5 the prior week. Most serious decline was in loans to buy single-family homes.

Developers and housing construction companies watch this index closely, as do traders. But Haver Analytics also states that this index is a gauge of economic momentum because "people have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments".

Haver also opines that "trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies. Each time the construction of a new home begins; it translates to more construction jobs, and income, which will be pumped back into the economy. Once a home is sold, it generates revenues for the homebuilder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new homebuyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month."

The Mortgage Bankers Association also reported today that borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.20 pct, up from the previous week's 6.04 pct, marking its first increase in eight weeks. Rates were at their highest levels since the week ended Dec. 23 (6.21 pct).

The 30-year fixed-rate mortgage, which is the industry benchmark, hit a low of 5.47 pct at the start of 3Q05 when the housing industry boom reached its peak.

According to Reuters, analysts say that declining demand in recent weeks reflects an increasing number of borrowers converting ARMs into fixed-rate loans as the difference between adjustable and fixed mortgage interest rates narrow.