Nail in the Coffin for the Housing Recovery Story?

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The Mortgage Bankers Association announced earlier on Wednesday that applications for U.S. home mortgages declined 0.9 percent  in the week ending November 23. The seasonally adjusted reading includes refinancing and home purchase demand. Other recent housing-related reports have also provided reasons to question on the “housing recovery” story.

Placing aside high unemployment or underemployment, shadow inventory levels and tighter lending standards, the housing bubble may be causing a shift in sentiment among young homebuyers. A new survey by Campbell/Inside Mortgage Finance shows that first-time home buyers accounted for only 34.7 percent of the housing market in October, the lowest level over the past three years and well below the historical 40 percent range.

Furthermore, JPMorgan Chase (NYSE:JPM) notes that new delinquencies on reworked mortgages without government backing surged in September. “We are now seeing a wave of re-defaults from the modifications over the last two years that failed,” explained America’s largest bank by assets. “This wave should last through 2013.” This could increase the shadow housing inventory and place even more caveats on the “housing recovery.”

Shares of KB Home (NYSE:KBH) and Toll Brothers (NYSE:TOL) initially sold-off on the new home purchases report, but recovered shortly thereafter. PulteGroup (NYSE:PHM) shares lagged behind the homebuilders.

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