JPMorgan is trimming about 13,000 jobs, becoming the latest big bank to shrink its staff. The bank said the cuts will be focused in consumer banking and mortgages. (Mark Lennihan/AP)

— JPMorgan Chase’s impending layoff of 13,000 employees in its mortgage division reveals much of what the nation’s biggest bank thinks about the housing market: the worst is over, but optimism for the future should be tempered.

On the one hand, the job cuts, as devastating as they might be for JPMorgan workers, reflect a positive turn in the housing market. Foreclosures at the bank have tumbled some 20 percent since the fourth quarter of 2011, which is why most of the employees receiving pink slips are those that were hired to handle mortgage defaults.

Struggling homeowners are catching up on payments or benefiting from alternatives to foreclosure as the economy improves. Seriously delinquent residential mortgages fell to 7 percent in the last three months of 2012, the lowest level since 2008, according to the Mortgage Bankers Association.

Yet the reduction of staff in JPMorgan’s mortgage production office indicates that demand for new home loans is not returning at a fast enough pace. The bank anticipates revenue from issuing mortgages will slide from $3.6 billion in 2012 to $1.5 billion this year. Mortgage banking income as a whole is expected to hit $2.1 billion in 2013, down from $3.3 billion.

Why the dramatic decline?

The company anticipates the amount of money it makes will be squeezed by heightened competition in the mortgage market. There is simply not enough business to go around for all the lenders vying for a piece of the housing pie.

“Margins were elevated in 2012. They’re going to . . . come down,” said Kevin Watters, head of the JPMorgan’s mortgage business, during an annual presentation to investors held Tuesday at its headquarters here.

Still Watters rattled off a series of statistics that bode well for the housing market: debt-to-income ratios are falling, buying a home is becoming cheaper than renting in some cities and demand is rising while supply is tightening.

Recent reports from the Commerce Department support Watter’s enthusiasm about the future of the market. New-home sales soared 16 percent to an annual rate of 437,000 in January, the highest level since July 2008. But the increases are coming from depressed levels as sales plummeted to a record low in 2011. What’s more, sales are still well below the 700,000 annual level that economists consider healthy.

Watters told a room of 200 black-suited investors that JPMorgan has a strong competitive advantage in the origination space due to its scale and market penetration. The bank aims to grow its 10 percent share of the mortgage business; Wells Fargo, the market leader, holds 30 percent.

The record mortgage profits Wells Fargo and JPMorgan reported last year were largely the result of the refinancing boom. Analysts, however, say that activity will likely wane in the coming year, pressuring earnings. JPMorgan says there is at least $250 billion worth of mortgages in its portfolio eligible for refinancing.

The bank maintains a positive outlook for its home loan business, but the reality is the housing recovery still remains fragile.