Mortgage rates are the lowest they've been in over three months. So why is the SPDR S&P Homebuilders ETF (the XHB) down?
The fear is that a default will lead to a spike in interest rates. That spike will make housing more expensive and hurt the nascent recovery. Fear of lower future sales in the home market has led market participants to sell homebuilders and their suppliers. The XHB is down 5.5% over the past seven days.
To be sure, the XHB isn't just homebuilders like Lennar or Ryland Homes. In fact, only 29% of the Homebuilders ETF is made up of actual homebuilding companies. The largest holding of the ETF is sheetrock-maker USG Corporation at 3.36%. Of nearly equal weight to USG are bed-makers Tempur Sealy and Select Comfort as well as retailer Bed Bath & Beyond. All are components in the homebuilding process but Bed Bath & Beyond isn't selling four bedroom homes between towels and knickknacks.
Just because the Homebuilder ETF isn't full of homebuilders, that doesn't mean the homebuilder stocks have had a greet week. On average, the nation's nine biggest publically-traded homebuilders are doing miserably over the last seven days.
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What has been hurting the homebuilders this past week? The biggest single player in housing is the United States federal government and that's right now in shutdown mode.
"Only about one-tenth of FHA [Federal Housing Administration] employees are working right now during the shutdown," notes CNBC contributor Gina Sanchez, founder of Chantico Global. "So, obviously, getting FHA loans is pretty much an impossibility at the moment."
Still, Sanchez believes the longer term situation, along with falling delinquency, default, and foreclosure rates, bodes well for housing stocks.
On the other hand, Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, believes the Homebuilder ETF is testing significant signals, including the 200-day moving average. His warning: "Watch out for housing here."
Is housing a long-term buy or does it have the potential of dropping far and fast? Watch the video above to hear the fundamentals and technicals take on homebuilders.
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