Did chatter about a potential taper beat up housing stocks?
First it’s not happening. Then it is. Then maybe not. No, we’re not talking about the latest celebrity couple. We’re talking about the Federal Reserve’s tapering of quantitative easing.
But, did chatter about a potential taper beat up housing stocks?
The world heard about a second round of quantitative easing from the Federal Reserve Bank on November 3, 2010. Since that date, housing stocks as measured by the SDR S&P Homebuilders ETF (the XHB), has nearly doubled.
However, a month ago, Fed Chairman Ben Bernanke hinted that the Fed may taper its $85 billion per month bond purchasing spree later this year. With less money anticipated to prop up that market, interest rates spiked as investors sold off their bonds.
“Oops. Did I say that?” said the Fed chairman last week. Well, he didn’t exactly say that but he might as well have when he said, “Highly accommodative monetary policy for the foreseeable future is what's needed in the US economy.”
Then, today, Bernanke said before Congress, “Our asset purchases depend on economic and financial developments, but they are by no means on a preset course.”
Very rough translation: “Oh, hey, yeah… so, like, about that ‘not tapering anytime soon’ thing… Um, like, anyway, I think we’ll maybe do something by year’s end if there’s an economic miracle or something but maybe not. I don’t know. I’m house hunting for my post-Fed job so I’m trying to keep these rates down just until I can lock in a mortgage, okay?”
What about other homebuyers and the homebuilders housing them?
Well, they’re not reacting positively to potential mortgage rate hikes. According to numbers released by the US Department of Commerce today, housing starts fell 9.9% in June. While the XHB is up 15% this year, it’s down 5% over the last two months as the market wonders what’s next for interest rates.
So, what’s next for the homebuilders? We ask Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, and CNBC contributor Steve Cortes, Founder of Veracruz TJM, to look at the charts and fundamentals on the XHB.
To see Ross and Cortes analyze the homebuilders ETF, watch the video above.