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Housing Recovery Could Blunt a Fiscal Cliff Standoff

Tickers in this article: JPM C BAC WFC

But that's not to say trends aren't improving, as the nation's overall home equity surplus shows an increasing rate of recovery. In second quarter results released by the Federal Reserve in late September, home equity rose to its highest post-crisis level, even eclipsing 2008 levels.

A housing supply shortage in many regions is also causing National Association of Realtors data to show a strong uptrend in home prices.

Earlier in November, NAR reported that 120 of 149 metropolitan areas saw home prices increase during the third quarter, indicating building housing market momentum. Also in November, CoreLogic showed the strongest 12-month home price increase in the U.S. since July 2006.

To boot, low interest rate policies by the Federal Reserve and a third round of monetary easing targeted at the mortgage market implemented in September continues to fuel a mortgage refinancing boom seen in the quarterly earnings of America's largest banks JPMorgan(JPM) , Wells Fargo (WFC) , Bank of America (BAC) and Citigroup(C) .

Outside of Fed policy, the Obama administration's Home Affordable Refinance Program is spurring on refinancing that lowers mortgage interest costs, and in some instances, gives homeowners capital to pump back into the economy.

Were home prices to continue to trend higher across the country and refinancing to continue running at 30% growth rates - as JPMorgan and Wells Fargo have shown in recent earnings - housing could become a driver of small business financing once more.

Given that a small business tax hit appears to be the biggest point of contention on what's likely to be a messy negotiation of a deal to forestall the 'fiscal cliff,' lawmakers need to look for as many ways as possible to find common ground.

Homeowner support -- a less partisan issue than tax policy -- also supports small business and may be an underestimated way for Republicans and Democrats to help propel a budget deal forward.

Although banks face a muddled earnings picture from cheap mortgage refinancing, industry leaders like JPMorgan CEO Jamie Dimon have made it a priority to stress their role in a housing rebound, in recent quarters. Add in a recovering housing market and a boom in bank mortgage refinancing to discussions on small business growth, which appear to be at the center of Washington gridlock, and you only widen the scope of who might participate in a 'grand bargain.'

-- Written by Antoine Gara in New York