JPMorgan Chase, feeling little ill effects from the federal attempts at investigation of their business practices, announced a major earnings jump of 34%. Part of this comes from the fact that the previous earnings report included most of the losses from the Fail Whale trades (which have increased to $6.25 billion, as per this earnings report), so this comes off a low bottom. But in the earnings call, CEO Jamie Dimon attributed the strength to increased consumer lending, and he added that the housing market has “turned the corner.”

Jamie Dimon, chief executive of JP Morgan Chase, has said the US housing market “has turned the corner”.

He said that his bank, which is the biggest in the US by assets, would be reducing the amount it sets aside to cover losses from mortgages.

But he warned that: “We also expect to see high default related-expense for a while longer.”

My initial reaction is that he must not be too scared about this Bear Stearns-related MBS lawsuit, if the company is cutting its reserves on losses related to mortgages (actually they cut their overall reserves for losses, too, by $600 million). But let’s focus on this claim that housing “turned the corner.” When a banker says that, he’s very specifically talking about how housing works for banks, not how housing works for the public as a whole. JPMorgan Chase originated $47 billion in home loans and refinancing in the quarter, an increase of 29% year-over-year. Mortgage unit earnings climbed 57%. That’s about depressed interest rates for mortgages and funneling into refinancing, both of which generates large profits for banks. Refinancing creates pure profit in closing fees, and on underwater loans through HAMP 2.0, as the lack of competition means banks can charge artificially higher interest rates to borrowers with nowhere else to turn. On mortgage purchases, the spread between the cost banks charge to borrowers and the cost banks pay to sell to the secondary market is now so high, profits on the average mortgage has hit a record.

So yes, for BANKS, housing has turned the corner. The refinance boom has inflated profits, and all of the artificial constructs on housing have stabilized prices – the 14 million vacant homes, many of them off the market; the scooping up of foreclosed properties by institutional investors paying cash, which is setting a market floor; the preferences on short sales over foreclosures and the facilitation of those short sales into the hands of investors. The foreclosure rate decline is an artifact of short sales, where the borrower still loses their home, and the lack of due process in non-judicial states, with the euphemism of “working through the backlog” used in place of “allowing illegal actions to continue.” By contrast, judicial foreclosure states and states with laws that force lenders to show actual proof of ownership are “creating a backlog” of long foreclosure timelines (this, paradoxically, is lowering the foreclosure stats, but nobody seems to like that).

Sales are actually declining in key areas, and most importantly, according to David Rosenberg we’re only halfway through the deleveraging process:

This was no ordinary recession. It’s been defined by the housing and credit bust, and that’s not close to being over. In fact he says that the deleveraging cycle is only about half over, and that even beyond that there are still problems due to the fact that so much household debt has been turned into Federal debt [...]

What are these headwinds?

Still experiencing scars of the last cycle. Real estate collapse. Bigger than the housing collapse.

Household credit contraction.

Household net worth. Shows first ever 5-year contraction. This is the chart that shows the baby boomer.

This means that households have less money to take on new debt in the form of new homes. They have grown skeptical of increasing their credit. And they have only worked their way through half the losses from the real estate collapse.

That’s not the example of a “healthy” consumer. So banks have gotten well; the homeowner has not. That’s the picture of housing I see right now.