There’s a lot of excitement around the rebound in the housing market and profits for the industry with good reason. Prices have been recovering from the depths of the crash, helping lift spirits and industry profits. This comes after housing has been blamed for both the Great Recession and the tepid recovery. After all, no post-war economic rebound has succeeded without residential real estate pulling its weight. And it seems to be picking up much-delayed momentum.
That’s why Friday’s quarterly results from Wells Fargo are important for shareholders and homeowners alike. Sure, it’s one of the biggest financial institutions in the country with millions of customers and billions of dollars in deposits. But Wells Fargo also is the single largest home mortgage issuer. That position gives it perspective and power over the housing recovery.
In the first three months of the year Wells Fargo loaned $30 billion to home buyers. One in three home loans in the country is made by the bank. Wells Fargo may have more than $1 trillion in assets and be deemed a globally important bank — but it remains a barometer of American housing and Main Street lending.
Pressure on the housing market is building. While still near historic lows, mortgage rates have risen to two year highs. The fate of Fannie Mae and Freddie Mac, government guarantors of almost all home loans, remains unknown and few homes for sale have helped fuel double-digit price increases.
These forces have brought forth concerns of another housing bubble. But banks like Wells Fargo have ensured buyers today are more qualified to pay their bills than the last run up in housing prices. Instead, a sharp and sustained jump in interest rates could threaten the upswing momentum of housing prices while helping immediate profit margins for lenders.
Tom Hudson is a financial journalist based in Miami. He is the former co-anchor and managing editor of Nightly Business Report on public television. Follow him on Twitter @HudsonsView.