The rise in home sales in each of the three months to December is the clearest sign yet that a modest housing market recovery is underway. The fact that mortgage approvals are still subdued, however, is a bit of a puzzle, especially when jobs growth is accelerating, income growth is picking up and the Fed’s Senior Loan Officer Survey is reporting a slight easing in credit. While the $25bn robo-signing settlement won’t meaningfully improve the outlook for the housing market, we do expect mortgage demand and home sales to gain ground this year. The improvement in activity has yet to feed through to house prices, but they should reach a floor later this year.