The upward trend in mortgage interest rates seems to be holding back mortgage applications over the long haul, even as mortgage applications came in stronger this week.

The question is, will this put pressure on the Federal Reserve to put the kibosh on an interest rate hike?

Mortgage applications increased 4.7% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending July 31, 2015.

Ed Stansfield, chief property economist at Capital Economics, says he’s banking on the employment situation to continue to improve, and that will prevent any rate hike by the Federal Reserve from hobbling the mortgage recovery.

“However, provided the labor market continues to strengthen as we expect, looser credit conditions and favorable affordability suggest that Fed tightening need not spell the end of the mortgage recovery,” he says.

The problem is, the July report doesn’t look all that rosy.

Friday's employment report will almost surely be a flop, based on ADP's estimate for private payrolls, which it sees rising only 185,000.

This is below the lowest analyst estimate for 190,000. It is also 20% lower than the 232,000 number ADP posited a year ago, and the weakest July since 2013.

Payrolls for businesses with 49 or fewer employees increased by 59,000 jobs in July, half of the June number. Employment among companies with 50-499 employees increased by 62,000 jobs, down from 78,000 the previous month.

The National Association of Realtors’ pending sales index went into a skid in June, falling 1.8% — expectations were for a 0.9% gain — the biggest drop since December 2013. The pace of the drop was what alarms analysts.

Worse, the S&P Case-ShillerHome Price Index is slowing as of May.

While this week’s report from MBA was solid, its measure of total mortgage applications declined by 0.8% from June to July. Refinancing edged up slightly, meaning that the overall drop was due to a 1.9% monthly fall in applications for home purchase.

“Refinancing activity edged higher despite another rise in mortgage interest rates, but this needs to be seen in the context of earlier falls. At 4.22% on average in July, up from 4.17% in June, 30-year fixed rates are now almost 40bp higher than they were in April. During this time, refinancing has plummeted by nearly 30%,” Stansfield says.

Looking to Treasury yields, the recent slide suggests that mortgage rates could decline in the coming weeks, which could provide some temporary support for mortgage refinancing.

The big question around the water cooler is whether the Fed will hold pat, or raise interest rates.

The Fed says that employment concerns are largely off the table, but a look at the minutes from the last few meetings show a very nervous FOMC, if you read between the lines.

And if July’s employment report is like so many others this past six years — that is, a big fat nothingburger served up by part-time employees with the only good thing being a drop in the unemployment rate driven by people giving up on working — (pause to breathe) then will the Fed really take the chance of hobbling this anemic recovery?

I don’t want to come off as a complete pessimist, so call it a rational cynicism.

(Pictured: My face when presented with rosy optimism)

There is some good news in key markets, but another thing to note is that the drop in home purchase applications pretty much zeroed out the modest gains made over the previous two months.

And while purchase applications were 17% higher than they were a year ago, the recent upturn is beginning to resemble, as Stansfield put it, the false dawn back in 2013. 

So, who wants to start a pool on whether there will be a rate hike at all this year?