The Missing Piece Of The Housing Recovery

After an unusually chilly winter froze sales activity in the U.S. housing market, existing and new home sales rebounded sharply.

However, applications for mortgages continue to decline. During the week ending June 27, the MBA mortgage applications index fell 0.2%, following a 1.0% decline the week prior. The week before that, the index plunged 9.2%.

"The weakness of mortgage applications for home purchase is the missing piece of the housing recovery," said Capital Economics Paul Diggle this morning.

"Homebuilders likely are gaining market share from private sellers - builders are more motivated sellers, and have better access to information - but sales cannot trend higher indefinitely with mortgage demand still so weak," wrote Pantheon Macroeconomics' Ian Shepherdson last week.

But other indicators suggest this could soon turn around.

"Nevertheless, the falling mortgage delinquency and foreclosure rates, the sharp drop in negative equity and the improving outlook for jobs and income growth all point to an improvement in mortgage applications over the coming months," said Diggle.

Here's a chart from Calculated Risk showing the progression of the MBA's purchase applications index.