It may soon be easier for the average homeowner to buy a house. But, is it too little, too late for home builders?
A change in policy by a federal government agency will make getting a mortgage possible for some borrowers.
Director of the Federal Housing Finance Agency Mel Watt said at a Brookings Institute conference that FHFA-controlled Fannie Mae and Freddie Mac now won't be reducing the size of the mortgages they insure. And, they will continue to back loans even when a borrower misses a couple of payments in the first three years. More rule changes loosening lending requirements are expected in the several weeks from now.
Fannie and Freddie have been under the FHFA's conservatorship since the financial crisis. The biggest players in the $10 trillion housing finance market, they were expected to wind down their operations in the next few years. However, Watt said, "we have reformulated this goal so that it no longer involves specific steps to contract the Enterprises’ market presence, which could have an adverse impact on liquidity."
Investors in Fannie and Freddie greeted the administration's new outlook by boosting their respective stocks 10 percent. But, none of these changes will matter much to the housing market, according to Steve Cortes, founder of Veracruz TJM.
"One of the most troubling aspects of the housing market," said Cortes, "is the fact that sustained low rates have really not encouraged a big uptick, at least in new home loans."
Cortes agrees with Equity Residential's Sam Zell, who said marriage deferral is having "a staggering impact on real estate."
"There's going to be some more pain in the housing market," Cortes said. "Household formation is just not upticking. There is a record number of young people who are living with their parents. Until we see household formation really start to tick up, I think housing is challenged."
For that reason, Cortes said he doesn't like home-builder stocks. "I've been trading them from the short side," Cortes added. "They've been underperforming all of 2014 and, for that matter, all of 2013 as well."
Richard Ross, global technical strategist at Auerbach Grayson, also doesn't like home-builder stocks or the ETFs that track them. He is bearish on the iShares U.S. Home Construction ETF (ITB), whose constituents are nearly two-thirds home construction companies.
According to Ross' one-year chart of the ITB, the ETF was in an uptrend starting 2013 but it broke below it in March after forming a bearish head and shoulders pattern. Also troubling to Ross is that the ITB is breaking below its 200-day moving average, currently at $23.23 per share. The ETF closed at $23.68 on Wednesday.
Even more worrisome for Ross is that the long-term chart of the ITB bears a resemblance to the U.S. 10-year Treasury Note yield, which is the benchmark for interest rates.
"That's somewhat counterintuitive because we're seeing weakness in the homebuilders even as those rates come off," said Ross, a "Talking Numbers" contributor. "You would have thought that downtick in rates would have seen some building activity. But, you're not seeing it. That tells me you want to be a seller here on the charts. I do not like the housing trade. I think they go lower."
To see the full discussion on the home-builders ETF (ITB), with Cortes on the fundamentals and Ross on the technicals, watch the video above.