Housing Pickup Could Lift Banks in 2011

Is housing starting to pick up? Stocks up as pending home sales are the second data point to surprise on the upside, following November retail sales. (Analyst says: Take advantage of dips in these retail giants)

Housing has been the missing ingrdient in the bull argument that the economy is improving, but October pending home sales (which measures contracts, not closings, and is therefore a better forward-looking indicator) were WAY ABOVE expectations of 0 percent growth, up 10.4 percent compared to September. We may now be finally ridding ourselves of the effects of the stimulus from the homebuyer tax credit.

"For the moment...there are a lot of tailwinds." -Trader Talk, Bob Pisani

Lawrence Yun, the National Association of Realtors chief economist, said, "The housing market clearly is in a recovery phase..." — a rather aggressive statement, given the tepid numbers we have seen to date.

What will really kick-start housing? Yun rightly called for a "return to more normal loan underwriting standards." In other words, the NAR is frustrated that a lot of their buyers are getting turned down by underwriting standards that have gone to the other extreme.

Not surprisingly, the big gainer on this announcement were banks. They have been the laggards in 2010, but if real estate picks up, and an improving economy increases loan demand, financials could be the market leader in 2011. (Special Report: Our Boldest Predictions for 2011)

Elsewhere: the failure of Mr. Trichet at the ECB to embark on a big expansion of the bond program hasn't killed our market this morning, or Europe's...what does that say?

It means that, for the moment...there are a lot of tailwinds:

1) the U.S. economy has put up a series of steadily improving data points for several weeks;

2) the China juggernaut continues;

3) the ECB is still buying bonds, they are just not announcing a big expansion of the program.

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