The Banking and Strategy Initiative

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US Economy: Housing Recovery 2012: Housing starts data encouraging, Regional Banks results show the promise

The US Bancorp Tower in Portland, Oregon

The US Bancorp Tower in Portland, Oregon (Photo credit: Wikipedia)

WE have already pointed out in our earlier regular survey/trawling of US Economic statistics daily reports thru July August that the Housing recovery numbers have always seemed impressive on Y/Y changes from 2011 but the increases are insignificant compared to the distance to the pre crisis 2006 levels of housing activity int he Economy inprice and build. The caveat being said the growth in Housing Starts to 872,000 in September with a 59% jump in Multi Family units to 286,000 YTD is really heartwarming even as the world looks on.

The recovery has come about mostly led by new activity in the West and the South with monthly increases in double digits and the South accounting for 50% of the total additions to Starts this year, West another 20-25% in Permits and in overall Starts

As estimates the total number of tarts for the year 2012 are likely to be a good 25% higher in 2012 at 750,000 with Multi Family units increasing a little faster ( Ave Size: ~1150 sft vs Single unit Ave size ~2350 sft)

The increase in Multifamily units also explains to an extent the lag in completions as these projects take more than  a year to complete.

The Privately owned Housing starts for September were 15% higher at 872K from the 758k data for August

In the meantime lower interest rates for MBS are unlikely to roll on to lower rates at big banks for consumers who are already paying all time low rates at below 3.6%  for $417k mortgages esp as the bank results show all of them to be more than busy with pending work in hand

The MBA purchase index is moving up smartly too and it is being hoped more than anything else that refi shares in the Purchase report indices will slowly be taken by fresh originations

The jump in the Employment rate though caused bya sudden totalling of Part Time employment acceptances ( more than 800,000) and the President’s ‘redeeming’ performance on the second debate also makes it likely that we might have a second term for the incumbent and thus the $5 T in Tax cuts replaced by new taxes on the rich with incomes above $250000 . PE funds are meanwhile actively opening and successfully closing more REITs and with the rise in MFUs mostly will be diversifying into funds with income objectives as well which have probably been done only for larger investors till now.

The August jump was mostly accounted for by the jump in HARP activity, which has accounted for 620,000 refinancings since the start of the year , a 100000 in August alone as per the latest GSE report

Meanwhile Japanese investors look to drive down still rising US Treasury yields but the firm yields do raise hope for the USA int erms of having more time periods of finite interest rates later in 2014 but indicate an acceptance that the GDP number next week is not likely upt ot he mark expected to declare a real recovery under way at above 2% growth for the year, having been revised to 1.4% till june 2012

If however the recovery does catch, having lasted a three year flat bottom in the housing market it will soon cycle thru improving jobs numbers and bring more dollars to stores and bank lending/deposits, also hitting an upward tally on housing prices and personal incomes which have mostly been beating  inflation but been weaker in Q2 data

Regional Banks deliver Mortgage profits

M&T,  US Bancorp ( which might be ahead of BofA after its recent attrition of mortgage business as correspondent etc as Countrywide legacy) and Comerica also reported great results. M&T Bank expanded profits by 60% as Mortgage Income grew to $107 M, showing the depth of the Mortgage market, even as overall Net interest Income of the Buffalo based bank grew to $662 M. M&T Bank recently upgraded its footprint in the North East with purchases of Wilmington Bank and Hudson City Bancorp (last month) and new lending was more than $66B at US BAncorp and $16B at the minion M&T Bank

US Bancorp the largest regional bank according to the WSJ report, doubled Mortgage income to $519 M  Margins were healthy at both M&T and US Bancorp at 3.77% and 3.59% respectively. However the larger regional banks and the big four have been playing to empty investor galleries as Net Interest margins have consistently been on a down trend for the last 6 quarters and more. Comerica’s NIMs were down 14 bps , US Bancorp 6 bps and BofA also 6 bps (2.35%) in this quarter and interst rates are likely to remain low for time to come

Comerica’s Net Interest Income was a drop of 2% over June yet $427 M and net profits were a beat of more than 10% at $116 M and US Bancorp scored a Topline of $5.2 B with Net Income of $1.5B meeting estimates of $0.74 cents per share. As a n indicator of the improved loan market conditions, Net chargeoffs in retail portfolios including mortgages were down 10% at all three banks ($30 M on $519 M at US Bancorp) as well.

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