The largest US banks reported relatively solid third-quarter earnings on Friday. But within those reports, investors found ominous clues about the future of the housing market, underscoring fears of an upcoming crisis.
What’s happening: JPMorgan reported that third-quarter home lending revenue plunged 34% from a year ago, and Wells Fargo logged a drop of 52% over the same period. The declines were due primarily to a spike in interest rates leading to a slowdown in demand for mortgages. Citigroup and Morgan Stanley also reported that mortgage loan growth was moderating.
As the Federal Reserve raised interest rates this year, mortgage rates also spiked to their highest level since 2002. Higher mortgage rates and elevated home prices could quickly lead to an end to the pandemic housing boom, but the Federal Reserve thinks that’s a good thing.
“We’ve had a time of a red-hot housing market all over the country,” Fed President Jerome Powell told me in September. “For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level…and people can afford houses again. We probably have to go through a correction to get back to that place.”
Powell’s prescription for what he referred to as a “difficult” housing correction has led to worries of another 2008-esque housing and financial collapse.
Data shows that the market is clearly in slowdown mode.
Home sales declined for the seventh month in a row in August and sales of existing homes – which include single-family homes, townhomes, condominiums and co-ops – were down 19.9% from a year ago, according to a report from the National Association of Realtors.
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