There's One Big Red Flag In The US Housing Market Data

U.S. home sales stats have turned up sharply following the bleak winter numbers.

This week, we learned existing home sales rose at a stronger-than-expected pace in May while new home sales saw it's biggest month-over-month increase in 22 years.

This has raised some chatter about a housing snapback.

But there is still one red flag: weak mortgage demand.

"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 Jana McTigue at Pantheon Macroeconomics.

Mortgage applications have been close to "rock-bottom levels," Ed Stansfield at Capital Economics wrote in a note earlier this month.

Stansfield also points out that while lenders have loosened their credit standards by a bit, they still expect borrowers to "have an above-average credit rating" and have "total debt payments on the mortgage and other loans" at 37% of income or less.

This chart from Shepherdson at Pantheon Macroeconomics shows the difference between existing home sales and mortgage applications:

And there's this interesting chart from Bank of America's Michelle Meyer that shows uses Google Trends to chart the search for 'homes for sale' against the search for 'mortgage calculator'.

"Presumably after a person finds a property of interest, a natural next step would be to determine if it is affordable," writes Meyer. "We have not seen an increase in such searches. Perhaps this is because prospective buyers are discouraged by the lack of inventory or the asking price. Either way, it suggests that buyers are curious, but not committed at this point:"