In Bank Earnings, Clues on Housing Market's Health
October 10 2015 - 5:59AM
Dow Jones News
By Joe Light
Major banks reporting earnings this week could shed light on
whether signs of headwinds in the housing market are fleeting or of
growing concern.
This week, J.P. Morgan Chase & Co., Bank of America Corp.
and Wells Fargo & Co. are set to announce their third-quarter
results, providing a window into the health of the mortgage and
housing markets.
In August, sales of previously owned homes were at a seasonally
adjusted annual pace of 5.31 million, 6% greater than August 2014,
according to the National Association of Realtors.
But sales were 4.8% off their July pace, and the NAR's pending
home-sales index, which is based on signings for home purchases,
declined 1.4%. Lenders' figures and comments on purchase loans
should offer a glimpse into how the overall market is doing.
The banks also are expected to update investors on how new
federal mortgage rules and expectations of rising interest rates
are affecting lending, issues that could weigh on the housing
market over the longer term.
The federal rules, which went into effect at the beginning of
October, are designed to make it easier for borrowers to understand
mortgage terms. But the requirements also have led to new processes
and technical challenges that could lead to disruptions in home
closings.
So far, those fears haven't played out, said NAR chief economist
Lawrence Yun. The trade group has reached out to real-estate agents
for signs of any disruptions, but so far hasn't heard of anything
significant, he said.
But Mr. Yun added that the real test won't occur until the first
big slug of home closings under the new regime begins in
November.
"Hopefully, this is like a Y2K event. The clock turns but
nothing happens," he said.
The banks also could shed light on whether mortgage
affordability and availability concerns are starting to rear their
heads again.
The average rate on a 30-year, fixed-rate mortgage dropped to
3.76% in the week ended Oct. 8 from 3.85% a week earlier, a slide
that helps affordability by reducing the borrowing cost.
On the other hand, some banks have begun to pull back from some
types of mortgage lending in response to proposed federal rules
they say would open them up to too much liability for minor errors
in making mortgages. That reduces mortgage availability for certain
borrowers.
Housing analysts will look to bank executives' comments for
clues on whether these trends are accelerating.
J.P. Morgan, for example, already has largely pulled out of
lending through the Federal Housing Administration, a primary
avenue for loans to first-time home buyers and others with
relatively poor credit or little money for a down payment.
Wells Fargo in September said it would raise the minimum credit
score it will accept on FHA loans to 640 from 600, a reversal of
its loosening in February 2014.
On net, the new restrictions "could add downward pressure on
credit availability," said Compass Point Research & Trading
analyst Fred Small in a note to clients.
Write to Joe Light at joe.light@wsj.com
(END) Dow Jones Newswires
October 10, 2015 05:44 ET (09:44 GMT)
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