It would be extraordinarily unusual for the combined figures on new and existing home sales to continue falling in the face of increases in mortgage applications. This doesn't mean that today's and tomorrow's figures on home sales will show gains; there is often a lag related to survey methodology and other factors, particularly for new home sales. Nevertheless, an upside surprise seems likely within three months.

This is not to say that the housing situation is good, just that the sales situation has stopped deteriorating. Homebuilders seem to be saying the opposite, which suggests that the uptick in sales is likely occurring in the existing home arena, where foreclosures are resulting in forced sales.

Some are questioning whether mortgage applications might be overstating sales activity. This camp argues that today's applications index won't translate into the same amount of activity as a similar reading would have in months past, arguing that fewer applicants are actually getting approved.

While that may be true, this has arguably been the case since the fourth quarter of last year, when mortgage lenders began to tighten credit. The tightening accelerated earlier in the year, so today's data on mortgage applications provide a fairly good apples-to-apples comparison, although some discounting of the recent strength is rational for a bit longer.

Supporting this view are comments from the MBA given in response to a question by Stone & McCarthy Research Associates. Here's what the MBA said:

"Any possible double counting would be minimal at best. The survey is mostly retail channel applications, and our definition of an application is that the entire creditworthiness evaluation process must be carried out on the application before it can be counted. This implies that the applicant would have paid any application fee required, thus reducing the likelihood that applicants would file multiple applications with different lenders. It is possible to have these types of applications, but there will not be a significant number. Additionally, since this is a retail survey, broker applications are not included in the survey, eliminating applications where brokers file multiple applications with different lenders shopping for the best rates and terms."