Thanks to an expiring tax credit, the Obama administration got some good news from the housing markets in the last couple of months.  However, the underlying numbers look positively grim, and CNBC’s Diana Olick believes they predict a double-dip recession in housing for later this year.  With mortgage applications hitting their lowest level in over 13 years, she has good reason to worry:

Everybody take a nice long look at today’s Pending Home Sales Index from the National Association of Realtors, because it’s just about the last positive picture we’re going to see for a while. …

This index is based on contracts signed in August, and that’s how the credit was set up; you had to sign your contract by April 30th and close by June 30th in order to get your $8000 if you’re a first time buyer and $6500 if you’re a move up buyer.

And then came May, traditionally the height of the spring housing season.

Mortgage applications to purchase a home began to sink. Now, four weeks later, mortgage purchase applications are down nearly 40 percent from a month ago to their lowest level since April of 1997. Yes, you can argue that a larger-than normal share of buyers today are all cash, but those are largely investors.

That means real organic buyers are exiting in droves.

The tax credit, as I have repeatedly argued, was nothing more than a Cash for Clunkers applied to the housing market.  It artificially inflated demand by stealing future sales and pushing them further up the calendar.  It did not create qualified buyers; it merely incentivized qualified buyers to act immediately instead of later this year or next year.

Now, without the artificial stimulus, we will see a serious deflation of a bubble extended by government intervention in the market.  That’s exactly what happened with the original housing bubble, and it’s not a coincidence that the end of an intervention takes us back to a demand level prior to the bubble’s beginnings in 1998.  The interventions have only postponed the natural revaluation of assets in the wake of irrational inflation over more than a decade.