Bank of America and Wells Fargo Weigh in on Housing Recovery

There are many “experts” that weigh in on the housing market recovery. All purport to be “experts” and their opinions are always based on recognized economic theory. Yet, the experts can never agree on the status of the housing market. My personal view is the fundamentals for recovery are very poor: too many homes with negative equity, high unemployment, huge shadow inventory, and tight lending. I do not see any scenario in which these factors support any semblance of a housing recovery. However, it is interesting to note the opinions of Wells Fargo and Bank of America. Both banks recently released statements describing how they “feel” about the state of the housing market. Their take on the situation is interesting. Wells Fargo optimistically announced that of all the economic sectors out there, housing remained “essentially unshaken” despite fiscal cliff worries. No word on whether or not that “unshaken” aspect was due to the fact housing is pretty near bottom in most areas of the country. The bank also noted that it felt reasonably good about housing because the Fed “appears to be banking on a housing recovery.” Wells Fargo may well also feel good about housing because it owns the lion’s share of mortgages in the country right now. The bank predicted that property would start appreciating slowly (“between 2.5 and three percent per year”) starting in 2013. Bank of America’s CEO Brian Moynihan was not quite so certain about the state of the market. He warned that not only might it be possible that homeownership is not actually for everyone, but that conventional lending might actually be hurting the market rather than helping. Moynihan pointed out that household income volatility has risen 30 percent since the 1970’s, adding that “a 30-year mortgage does not provide flexibility in some cases” and speculating that homeownership might not be a good option for many Americans at this time. He also said that there “is no practical alternative to government participation [in the housing market] at this time,” adding that a federal exit is probably “a decade or two in transition” if it happens at all. Paddy Deighan J.D. Ph.D http://www.homesavers.pro