Speaking at the Morgan Stanley Financials Conference yesterday, Wells Fargo & Co (NYSE:WFC) Senior executive vice president and CFO John Shrewsberry said that home sales have picked up from the first quarter lows, but that the pace is still disappointingly slow. While he doesn’t pinpoint a single cause for the weak housing numbers, a regional mismatch between economic growth and affordability could be at play.

Wells Fargo Housing Market

Wells Fargo CFO: Housing affordability and economic prospects don’t match up

“This purchase season doesn’t seem as robust as we might have imagined it, it is a little bit slower. And so we will see whether that changes as we go into summer,” said Shrewsberry. “In spite of affordability, in spite of better employment and the little bits of green shoots that we see out there, it is not showing up from our perspective as strongly in the home purchase market as we might have expected.”

Wells Fargo & Co (NYSE:WFC) is still forecasting between $1 trillion and $1.1 trillion total market size for the US housing industry this year, but Shrewsberry acknowledges that the recent pickup in activity is mostly a seasonal affect. If we don’t see sales start to grow above trend sometime this summer it will be difficult to make up for the weak 1Q even if everything else is on target.

Shrewsberry points to a ‘regional set of explanations’ for the disappointing sales numbers, as growth is strongest in the New York area, the Bay area, and other metropolitan hubs where people are also getting priced out of the housing markets. In other parts of the country, where housing is more affordable, prospects aren’t as good.

Wells Fargo CFO: QM is ‘a relatively high bar, in a good way’: Shrewsberry

Asked about the impact of the Qualified Mortgage (QM) rules created by Dodd-Frank, Shrewsberry said that “it is the binding constraint for people who would want to buy a home who are at the lower end of qualification,” and that “It is a relatively high bar, in a good way. It encourages responsible lending and it is meant to discourage people from being in homes that they can’t afford.”

He estimates that the effect of QM is to reduce the total market size from a $1.2 trillion – $1.3 trillion range down to the $1 trillion – $1.1 trillion range that Wells Fargo & Co (NYSE:WFC) expects because the loans there are only so many loans that are both prohibited by QM and that the banks would be interested in writing, and they tend to be smaller mortgages anyways.