Financial Services: Housing Market Still on the Worry List
Bargains are still hard to find in financial services, as the U.S. mortgage market is stuck in limbo and housing bubble concerns rise in Canada.
Quarter-End Insights
Mentioned: National Bank of Canada (NA)
, Standard Chartered PLC (STAN)
, Apollo Global Management Inc (APO)
, Synchrony Financial (SYF)
, PNC Financial Services Group Inc (PNC)
, Wells Fargo & Co (WFC)
, Federal Home Loan Mortgage Corp (FMCC)
, JPMorgan Chase & Co (JPM)
, Fannie Mae (FNMA)
, Canadian Imperial Bank of Commerce (CM)
- The financial services sector appears to be fairly valued. The overall industry trades at a price to fair value ratio of 1.02, which suggests bargains are limited. The cheapest subsector is Latin American banks at a price to fair value ratio of 0.88, while the most overvalued subsectors are regional U.S. banks, saving and cooperative banks, and Asian banks, with price to fair value ratios of 1.09.
- The U.S. mortgage market continues to be in limbo. With Fannie Mae and Freddie Mac in the process of being wound down, better positioned banks will need to focus on developing long-term advantages in the market through economies of scale, low funding costs, underwriting quality, revenue generation ability, and operating efficiency. Regional banks with significant mortgage exposure are most susceptible to market share losses as they lack the scale or cost advantages needed to maintain share in a more heavily regulated market.
- The Canadian housing bubble is another source of concern. While we have numerous concerns, we highlight three of the major areas: housing affordability, the impact of immigration, and the Canadian government's ability to create a soft landing for the Canadian housing market.
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Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.