Surge in mortgage demand will not be sustained

A drop in interest rates gave the mortgage market a shot in the arm in March, with applications for home purchase rising to close to a nine-year high. But we doubt that housing market activity is set for a sustained rise this year. A slowing economy will increase both buyer and lender caution, and in any event the old problem of a lack of inventory will weigh on existing home sales. A rise in earnings growth in recent months has supported rents even as vacancy rates have edged up. Subdued home sales means rental demand will not collapse, but rental growth is likely to slow gradually over the next year or so.