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Bank of America Corp (BAC), Wells Fargo & Co (WFC): Why Reading Between the Lines Will Help Banks Decipher Housing Opportunities

This morning’s housing news was another big boost for investor confidence in the housing market’s recovery. And more than that, it showed a rising trend that could help the nation’s banks grab on to new revenue growth. Though none of the banks look like winners on the exchange today, these headlines have longer-term implications for the lenders.

Bank of America Corp (NYSE:BAC)

Home run
Of course, the recovery of the housing market has a much bigger impact on the economy than just helping banks boost new income, but since mortgage originations have been such a big focus for investors over the past few quarters, banks may be feeling a little more relief after this morning’s report on June sales.

New single-family homes sold at an 8.3% higher rate in June than they had in May, marking a five-year high. Coupled with the 3.9 month supply of homes remaining, which is much lower than the six-month supply usually viewed as a good balance between supply and demand, it looks like home prices will continue to rise if buyer demand stays at current levels.

On Monday, there were mixed signals from the housing market as sales of existing homes in June fell 1.2%, but prices had continued to rise. Maybe now investors could look at the decline as a switch in buyer preferences since the rise in new homes was so sharp.

The going rate
Other good news for home buyers came this morning in the form of lower interest rates. Since mid-May, interest rates had been rising on the fear that the Fed would begin tapering its stimulus policy. But since Fed Chairman Ben Bernanke has made the rounds to reassure everyone that tapering won’t begin soon, a sense of calm has returned. Rates fell by 10 basis points last week — the first decline in more than two months. And though the resulting rates offered are nowhere near the rates we saw in May, new buyers will still have plenty of incentive to lock in the historically low rates offered by lenders now.

Applications, please
Speaking of lenders, most of this news should have been welcomed by bank investors today, but one small factor may have stopped them in their tracks: New applications for mortgages dropped another 2% last week.

So while banks can relax as investors estimate how many of the June sales were financed by their respective bank investments, the future income from new loans looks a little more uncertain. For Bank of America Corp (NYSE:BAC), which has been vocal about its goal to make headway into the mortgage market, this drop in new loan applications may signal a lesser opportunity to realize that goal. For Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM), the No. 1 and No. 2 originators in the land, the drop in buyers seeking new loans (as tallied by the applications submitted) may represent a decline in revenue.

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