Is the rough start to 2015 in both housing and mortgage finance just a stutter, or does it portend worse things to come?

First, here’s the lay of the land at the end of February.

The year is off to a bad start for housing in terms of housing starts, completions and permits. Existing home sales tumbled in January, and mortgage applications have been spiraling downward in February, giving away most of the gains made in January.The earliest home price report from Black Knight Financial Services pointed to home price declines in December.

“Last week's FOMC meeting minutes showed a decisively more dovish tone than the market expected,” says Lindsey Piegza, chief economist for Sterne Agee. “Although, given the slew of disappointing economic news including back-to-back months of negative retail sales, a one-year low on the ISM, and four consecutive months of negative durable orders, not to mention increasing concerns regarding a further decline in inflation and a still-sluggish housing market, it's hard to imagine why the Fed wouldn't sound dovish in their assessment of the economy, as well as hesitant in their ability and willingness to initiate liftoff.

“This morning's home sales report further confirms the Fed's assessment of a ‘slow’ recovery in the US housing market,” she said. “On Tuesday, Janet Yellen begins her semi-annual testimony to Congress. Investors will be looking for clarification in the policy testimony in terms of the timing of the first rate increase. However, Yellen’s testimony is likely to be far less revealing. Instead, we expect the Chairman to reiterate the Fed’s relatively balanced view on the economy, their data-dependent stance, and the Committee’s rising concerns around the globe from declining oil prices to geopolitical unrest.”

The slowdown in mortgage purchase applications is also weighing on analysts. Mortgage purchase apps have faltered, and that limits upside risk for mortgage rates, according to the analyst team lead by Chris Flanagan at Bank of America/Merrill Lynch.

Dave Norris, president & COO of loanDepot, tells HousingWire that he sees this as more than just a seasonal slowdown. He sees an endemic problem.

“Better than average December home sales and chronic low inventory levels contributed to the poor January results, but there is more at work than simple seasonality,” Norris says. “Too many qualified buyers are getting turned down for a mortgage because lending standards remain unnecessarily too stringent, especially debt to income ratios. They have been frozen in place by the QM Rule that took effect one in January 2014, and we are all still feeling its depressing effect on the mortgage and credit marketplace. 

“Until we loosen standards to make it possible for average American families and responsible borrowers to access the credit they need, housing markets across the country will remain vulnerable to periods of weak demand,” Norris says.

But Paul Diggle, property economist at Capital Economics, says he is not worried about these early soundings. He points to what he sees as fundamentals strong enough to overcome this bump in the road.

“The drop in home sales at the start of 2015 is not a sign that the admittedly lackluster housing recovery is coming off the rails,” Diggle says. “Strong employment growth and signs that wage growth will soon accelerate point to a rebound in existing home sales before too long.

“But there’s no doubt that this is a disappointingly weak start to the year,” Diggle says. “Furthermore, judging by the latest slide in mortgage applications for home purchase, sales may not have picked up much in February. That said, neither today’s figures, nor recent developments in the economy, undermine our view that existing home sales will rise to an average of 5.3m this year.”

He notes loosening supply in January and growing payrolls as his reasons for optimism.

“Nevertheless, housing will remain affordable for some time yet, meaning that 2015 should be a good year for the housing market,” he says. ?

Kroll Bond Ratings Agency is likewise optimistic over the long haul.

“After showing considerable weakness last summer, single-family home prices in most metro areas around the U.S. have started to rise again,” KBRA says in a Monday client note.

KBRA bases that on November indices and 12-month forward projections published by Weiss Residential Research. 

This, the last week of February, could tell the tale as we get a fuller picture of where things are headed. On Tuesday, we’ll see the S&P/Case-Shiller 20-city home price index for December.Wednesday will give us the new home sales report from the Census Bureau. The pending home sales index for January comes out on Friday.