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A 2012 Housing Rebound Can't Save Bank of America

Housing story updated with most recent data.

NEW YORK ( TheStreet) -- So what are the odds of a strong housing rebound in 2012?

Right now, economists think it is pretty remote. Housing prices are, at best, expected to bottom in the second half of 2012, according to consensus estimates. And once it finds bottom, it is expected to languish there for another couple of years as excess supply continues to strangle prices.

So if you are looking for a "black swan" event with a positive spin for 2012, it does not get better than a robust recovery in housing. It is the stuff you dream of if you have an underwater mortgage- or if you are Bank of America's (BAC - Get Report) CEO Brian Moynihan.

An improvement in housing will no doubt help the home-building sector and related industries. But it will also be a big catalyst for bank stocks, with the fortunes of the sector deeply tied to the economy and the problems in housing.

>>6 Homebuilder Stocks in Rally Mode

"If you see high single-digit or low double-digit growth in housing, that will get people excited about financials, especially bank stocks," according to Frederick Cannon, analyst at KBW.

Cannon expects Wells Fargo (WFC - Get Report) to be the biggest beneficiary of a turnaround in housing. "Wells has maintained its presence in the mortgage origination market and is poised to grow mortgage origination business if housing recovers," he said.

>>Cramer: Put Wells Fargo in Charge of Housing

One might expect the stock of Bank of America, which has been weighed down the most among the large banks by its mortgage woes, to do better if housing recovers. However, Cannon says it would take a lot more for the bank to resolve its problems. "Unless the housing market goes up 30% to 40%, those legacy assets are going to continue to be an issue for a long time."

Bank of America, JPMorgan Chase (JPM - Get Report) and Wells Fargo are the biggest players in the mortgage origination business. However, Wells derives a bigger chunk of its business from mortgage banking compared to its larger rivals.

Recent housing data has sent confusing signals about the direction of the housing market. The S&P Case-Shiller Housing Price Index showed home values in the 20-city composite falling 3.4% in October on a year-on-year basis and 1.2% over September. Meanwhile, pending home sales, a forward looking indicator of existing home-sales activity showed signs of improvement, increasing 7.3% on a monthly basis to 100.1 in November, its highest level in 19 months.

While it is hard to imagine the current housing slump suddenly turning around to post double-digit growths, some unforeseen developments could ease the situation in housing, according to analysts.

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