Tighter credit conditions rule out sales recovery

Mortgage interest rates recently dropped to three-year lows, but mortgage applications for home purchase are more-or-less unchanged from where they were at the start of the year. A slowing economy, tighter mortgage lending standards and lack of existing home inventory have kept home buying sentiment subdued. None of those factors will improve over the next year, and with mortgage interest rates set to rise gradually existing home sales will do little more than tread water. But low levels of inventory will prevent outright falls in house prices, and encourage builders to gradually increase production. A tight home sales market will also support rental demand, preventing a sharp slowdown in rental growth.