Why Bank of America Is Rallying Today

Yesterday was a day to forget for a lot of investors in Bank of America (NYSE: BAC  ) . When all was said and done, shares of the nation's second largest bank by assets finished the day down by more than 3.5%. It's worth noting, moreover, that this was on top of the 5.5% that B of A had given back last week.

The good news is that the trend has at least temporarily halted. With roughly two hours left in the trading session, shares in the lender are higher by $0.10, or 0.91%.

A tsunami of financial news
Today's change in direction comes on the heels of a veritable tsunami of financial news. The most significant are a series of reports emanating out of the housing market.

Two separate sources confirmed this morning that housing prices are continuing their upward ascent. The S&P/Case-Shiller index of property values increased by 6.8% in December over the same month in 2011. According to Bloomberg News, the median estimate of economists called for an advance of 6.6%.

These results were confirmed by the Federal Housing Finance Agency's house price index (link opens PDF), which is calculated using sales price information from Fannie Mae and Freddie Mac mortgages. On a sequential basis, home prices rose by 1.4% in the fourth quarter of last year. And on a year-over-year basis, they increased by 5.5% compared to the fourth quarter of 2011.

According to FHFA's principal economist:

The fourth quarter was another strong one for house prices, as it was the third consecutive quarter where U.S. price growth exceeded one percent. While a significant number of homes remained in the foreclosure pipeline, the actual number of homes available for sale was very low and fell over the course of the quarter.

In addition to prices, the Commerce Department released data (link opens PDF) today showing a similar trend in home sales. The report said that sales of new single-family houses in January were at a seasonally adjusted annual rate of 437,000. This is 15.6% above the revised December rate, and 28.9% above the same month last year. In addition, by its estimate, home prices increased by 2.1% last month compared to January of 2012.

Suffice it to say, this is great news not just for B of A, but also for all of the other major mortgage lenders. The best positioned to benefit is Wells Fargo (NYSE: WFC  ) , which is the undisputed champion of mortgage lending, originating a staggering $125 billion in mortgages last quarter. As you can see in the chart below, that was more than double the volume of runner-up JPMorgan Chase (NYSE: JPM  ) and more than five times that of both B of A and U.S. Bancorp's (NYSE: USB  ) volumes.

Source: Company filings.

Beyond the housing market, the FDIC released its always-informative quarterly banking profile (link opens PDF) this morning. The publication, which covers the final three months of last year, provides invaluable industrywide statistics. Among other things, it revealed that banks earned more money in 2012 than any year besides 2006.

Summing up the report, the FDIC's chairman Martin Gruenberg said, "When you look back to where we were just a few years ago, the progress made to date is meaningful. But troubled loans, problem banks and bank failures remain at elevated levels, while growth in lending and revenue remains sluggish."

Finally, in testimony today before the Senate Banking, Housing, and Urban Affairs Committee, the chairman of the Federal Reserve, Ben Bernanke, strongly defended the Fed's ongoing stimulus measures.

While concerns had recently been raised about the program's duration, under which the central bank is purchasing upwards of $85 billion a month in long-dated treasuries and agency mortgage-backed securities, Bernanke argued that the concerns do not seem material at the moment. "To this point, we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more rapid job creation," Bernanke testified. He went on to note, however, that there is "no risk free approach to this situation. [But the] risk of not doing anything is severe as well. So, we are trying to balance these things as best we can."

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