When the Mortgage Bankers Association reported only a small uptick in mortgage applications for the week ending June 1, analysts with Capital Economics said a slowing in the labor market could be stifling housing demand once again.

In its most recent report, the MBA said mortgage applications rose a slight 1.3% on increased refinancing activity, but purchase activity fell slightly. Paul Diggle, a property economist with Capital Economics, said "The small fall in mortgage applications for home purchase suggests that, despite record low mortgage rates, the renewed weakness in the labor market is starting to weigh on housing demand."

He added that he wouldn't be surprised if purchase applications fall further in the coming months given the drop in consumer confidence during the month of May and recent reports of deterioration in the labor market.