Mortgage rates have risen, slowing down activity in the housing sector. Wells Fargo — along with many other companies — is trimming staff, in response to the grimmer economic outlook.
“Real-estate values moderating in the long term are a good thing,” Charlie Scharf, CEO of Wells Fargo WFC, -1.28%, said during the Aspen Ideas Festival, a CNBC event, although he acknowledged that this was bad for the bank’s business.
Scharf said it will help ease pressures on inflation, which are being particularly felt in more expensive monthly rents and higher mortgage repayments due to rising interest rates. He added: “But it’ll be messy going through it.”
Inflation rose by 8.6% on the year in May to a 40-year high, led by the higher cost of gas and food. The core rate of inflation — stripping out food and energy costs — rose 4.7% in May from a year ago.
The housing finance industry is shaking from the Federal Reserve’s 0.75 percentage point hike in June. Lenders from Wells Fargo to JPMorgan JPM, -2.50% to real-estate companies like Redfin RDFN, -3.49% and Compass COMP, -1.84% are laying off staff.
“We’re seeing a huge decline in terms of just mortgage applications,” Scharf said. “Our mortgage revenues will be down 50% from the first quarter to the second quarter.”
The limited supply of housing and more expensive financing will still mean housing is less affordable for a “broad group of people,” Scharf said, but he added this will not impact all homebuyers equally, and will hit lower-income households harder.
“I hate to sound like a broken record, but the people who are at the lower end of that are the ones who that impacts the most,” he said. “They don’t have reserves, they can’t stretch [their finances], it’s harder for them to get credit.”
Refinancing activity is up 2% week-over-week, but down 80% compared to the same period last year. Mortgage applications were slightly up for the week ending June 24, according to the Mortgage Bankers Association.