This Banks Real Estate Business CRASHES 97%! | Summary and Q&A

TL;DR

The Federal Reserve's impact on the real estate market is evident in Wells Fargo's Q4 earnings, which show significant decline in their mortgage business.

Key Insights

• 👨‍💼 Wells Fargo's mortgage business has suffered a significant decline, with revenues down 92% year over year.
• 🥺 Tight lending standards on mortgages are leading to a decrease in demand for home loans, affecting the real estate market.
• ⏫ Major real estate markets are predicted to experience double-digit declines in 2023, except for Baltimore and Miami.
• ✋ The current mortgage market is unsustainable, with mortgage costs comprising a high percentage of household income.
• 🌸 Wells Fargo's net income has declined by 53% year over year, impacted by declining revenues, increasing expenses, and provisions for credit losses.
• ☠️ The Federal Reserve's tightening of interest rates has impacted Wells Fargo's average loans outstanding and commercial loans.
• 👨‍💼 The stock price of Wells Fargo has shown positive momentum, but the fundamentals of the company, particularly in the mortgage business, are concerning.

Transcript

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Questions & Answers

Q: How did Wells Fargo's Q4 earnings perform?

Wells Fargo reported a decline of 6% in revenues for Q4, mainly due to the significant decline in their mortgage business, which was down 92% year over year.

Q: Why is Wells Fargo focusing on existing customers in the mortgage business?

The company is targeting existing customers as new customers are scarce, given the tight lending standards on mortgages, which have not loosened despite rising interest rates.

Q: What does Goldman Sachs predict for the real estate market in 2023?

Goldman Sachs forecasts double-digit declines in major markets like San Francisco, San Diego, Phoenix, Austin, Seattle, and Tampa. Only Baltimore and Miami are expected to see price increases.

Q: How sustainable is the current mortgage market?

The annual mortgage cost as a percentage of household income is sitting at 45%, which is not sustainable. To maintain stability, there is a need for either significant wage increases or a decrease in home and rent prices.

Summary & Key Takeaways

• Wells Fargo reported Q4 earnings with a decline of 6% in revenues, primarily due to the struggling mortgage business.

• The company is focusing on existing customers as new customers are scarce, given tight lending standards on mortgages.

• Goldman Sachs predicts double-digit declines in major real estate markets, except for Baltimore and Miami, and suggests a need for a decrease in home and rent prices to sustain the market.