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New Evidence Mortgage Market Is Choking Housing Recovery

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One piece of data does not a conclusion make…two pieces get closer. A new reporton the apartment market out today from Reis, Inc . shows a big surge in net absorptions, despite very little new supply of apartment units. Apartment vacancies dropped 40 basis points to 6.2 percent, which is a record plunge.

Rents are rising steadily, but the renters keep coming.

"We are now seeing the results of a sharp convergence of positive factors for apartment rentals. First, as labor markets continue to improve and hiring picks up, demand for housing is increasing, particularly in the 20 to 34 year segment of the labor market," notes Reis' Victor Canalog. "However, with the single family home sales market still on the ropes, and with deflationary expectations for home prices for at least the coming year, few of these newly hired young workers have the appetite to commit to buying a home."

Few have the appetite, but even fewer may have the ability to buy, given today's tight mortgage market. Just look at piece of data #2: Weekly mortgage applications. Yes, applications to purchase a home rose 6.7 percent. While the current volume of these applications are still abnormally low, a jump is a good thing, especially since we haven't seen a jump in a while, and we're supposedly in the busy home-buying season. Unfortunately, the jump in those applications was driven by a big (10 percent) surge in FHA (Federal Housing Administration — which insures loans) loan applications.

Why?

Because FHA insurance premiums were scheduled to increase on Friday, and borrowers were likely trying to get in under the wire.

FHA-insured loans are really the only low down payment loans around today. In order to get the most favorable rates from non-FHA lenders, you're likely going to need at least 20 percent down, and many buyers today simply don't have that. FHA is also supposedly geared to borrowers with lower credit scores, although FHA has upped those minimums as well.

Bottom line, while an improving jobs picture may be improving demand for housing, that demand is hamstrung by equally low confidence in home ownership and inability to obtain good financing.

Questions? Comments? RealtyCheck@cnbc.comAnd follow me on Twitter @Diana_Olick