In Dow Moves, Housing News Plays Second String to Earnings

In Dow Moves, Housing News Plays Second String to Earnings

The Dow Jones Industrial Average took a shallow dive this morning after disappointing earnings distracted investors from the continued gains in the housing market. As of 11:45 a.m. EDT, the index has started to shake off the noise and has regained some ground, with only an 8-point loss. Though earnings season is a good time to reassess your strategies and positions, if you're not invested in any of the companies that reported this morning, it may suit your needs better to focus on the big story.

Partying like it's 1992
New highs aren't just for indexes anymore -- the rate of new home sales in June reached a five-year high, despite a rise in mortgage rates. Though we saw earlier in the week a slowdown in existing home sales, the data for June shows that buyer demand is hot. New home sales rose 8.3% since May and single-family home purchases have risen 38.1% since last June -- a rise not seen since 1992.

Not only did investors get the happy news about June's impressive rise in sales, but this morning's report on mortgage applications delivered some very welcome news about interest rates. Last week saw the first decline in mortgage rates since mid-May when Fed Chairman Ben Bernanke stirred up the market with his talk about tapering stimulus policy plans. The 10-basis-point drop is the first sign that Bernanke's latest coverage of the topic is finally getting through and the tension in easing within the market.

Keeping an eye out
The news from the housing market this morning is great, but banks won't start rejoicing just yet. In the same report as the decline in interest rates was news that last week saw yet another decline in new applications for mortgage loans, which fell another 2%. Home loan activity is the most important aspect of the housing market for banks, which look to loans for a huge percentage of their revenue stream.

This fact may be playing a part in Bank of America's nearly 1% decline in trading today. Since the bank reported earnings last week, it's been on a mostly upward trajectory. But one of the bank's main goals, to grab a bigger slice of the mortgage market pie, just hasn't happened yet. And with fewer buyers taking the steps to submit applications for new loans, that creates fewer opportunities for the bank to draw in new business.

Wells Fargo and JPMorgan are less concerned when it comes to drawing in new business, with the two banks controlling 39% of the market. But a slowdown in applications does pose a concern for the revenue growth that we've seen in the past few quarters for the banks. Wells Fargo did have higher loan originations in the second quarter (JPMorgan did not), but the bank noted that its pipeline for new loans was much smaller than at the end of the first quarter.

Overall, a positive morning
Though the banks have a little work on their hands to offset a decline in new activity, the news from the housing market is a great sign for the overall economy. Since housing plays such a big part in the strength of the economy as a whole, more signs of buyers returning to the market should be welcomed by investors and seen as continued progress for the nation's recovery.

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Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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