According to RealtyTrac, banks increased foreclosures 11.0 percent in May. Though the overall foreclosure rate is down from last year, banks have decided that they want to get out from under the distressed inventory currently on their books. This move will not only have an impact on banks’ bottom lines, it will also have an impact on home prices.
Another situation that could affect banks’ profitability is rising interest rates, which have already dampened refinancing demand. Today, the Wall Street Journal reported that: “Refinancing applications last week were down 36% from the first week of May, before rates began climbing.” According to the report, lenders had been predicting that refinancing activity would taper off but that they did not anticipate the move in rates would happen so quickly. If the upward movement in rates continues, not only will they have an affect on banking operations they also will have a much broader impact on the overall economy, which is still struggling to recover from the housing market collapse. As of yesterday’s close, the yield on the 10-year Treasury note closed at 2.19 percent, six basis points lower. Since May 1st, the rate for the 10-year note has risen from 1.66 percent to a high of 2.25 percent, which was reached on 6/12/13.
Going forward, rates should be monitored carefully for signs of a shift in investors’ attitudes. Increasing rates may signal something more than investors’ fears of a shift in Fed policy. There have been signs that inflation may be on the rise which, ignoring for a moment the Fed policy changes it could force, will have a direct effect on the economy.
