NEW YORK -- An 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 Association of America, measures the volume of applications for loans to buy houses. Since mid-September, it has climbed more than 8 percent, attaining its highest level since May.
Economists say the rise reflects consumer enthusiasm about the lowest mortgage rates since the late 1970s.
The index, which has been calculated for two years but only recently been made publicly available, 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 Association. "It's an indication that sales are starting to turn around."
Mr. Berson said home sales are likely to rise this month, and probably were up in October. Data on October home sales will be announced at the end of this week.
But Mr. 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 percent from August, the largest drop in 2 years. Sales of existing homes also fell steadily in July, August and September.
The declines were viewed as alarming by many economists who had been counting on housing to lead the country out of recession.
The Mortgage Bankers Association, a trade group, began calculating application levels in January 1990, working from a weekly survey of 17 mortgage banking companies.
While the index's track record is short, Mr. 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.
Its predictive powers are easy to understand. Home sales generally do not close until 30 to 60 days after a buyer submits a mortgage application. Sales of existing homes, the largest component of total sales, are reported largely on the basis of closings.
The index proved to be right on the mark when it rose in January: a four-month rise in total home sales began in February. In April the index turned down -- and home sales followed suit in July. That lag was somewhat longer than usual.
Though the index seems to accurately point to directional changes in home sales, the correlation between applications and sales is not perfect.
"It would be nice if we could calibrate percentage changes in our index with levels of home sales, but as yet we are unable to do that," said Richard Peach, deputy chief economist at the Mortgage Bankers Association.