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Double Dip for housing
April 27th, 2011 8:00 AM

Housing is feeling awfully double dippy.

S&P/Case-Shiller home-price data out Tuesday showed a 3.3% year-over-year drop in February, while the index's measure of 20 metropolitan areas was just a hair above the crisis low seen in April 2009.

For banks, the renewed downturn is likely to mean some pain, although not necessarily a crushing blow. That is largely due to the jobs picture. Today's unemployment rate of 8.8% is almost exactly where it was in early 2009. But back then joblessness was rising. Now, it is falling.

If that trend holds, and if renewed price falls don't near the 10% level, banks probably won't see a serious increase in delinquencies. Even underwater homeowners are less likely to default if they remain employed. And one possible silver lining in the Case-Shiller data was that the size of month-to-month declines has been slowing of late.

True, falling prices possibly will slow some of the sharp improvement in credit quality seen by banks in recent quarters. This has allowed them to reduce the amount of reserves they hold against potential loan losses, which has bolstered profit even as revenue growth has faltered.

Should reserve releases slow, the bottom line could feel additional pressure. Banks, especially the biggest, also may be forced to further write down the value of foreclosed properties on their books, due to lower recovery values.

That may cause already sluggish bank share prices to remain in the doldrums. But it isn't likely to punch the kind of balance-sheet holes that caused such pain when housing last melted.

Posted in:General
Posted by Stephen Rochkind, SRA on April 27th, 2011 8:00 AMPost a Comment

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