The ACA Itself
Another issue is the Affordable Health Care Act itself, which has already triggered employers to cut costs by slashing workers’ full-time hours down to part-time or just eliminating jobs altogether.
A recent Gallup poll found that 41% of employers had frozen hiring and 19% had already reduced their staff as a result of the new healthcare law.
Another obstacle is the “qualified mortgage,” enacted this year by the Consumer Finance Protection Bureau, which makes it more difficult for lenders to approve loans for certain borrowers who fall outside of mainstream underwriting guidelines.
In addition, a new policy established by the Federal Housing Finance Agency (FHFA) raises fees on all government-backed loans … though new FHFA head Mel Watt has ordered Fannie Mae and Freddie Mac to delay those fees, and an elimination of an older fee could be in play, too.
Housing Stocks Outlook
Given these problems, it’s quite possible that the recent rebound in real estate sales and prices will soon be coming to an end.
Therefore, investors should avoid most of the traditional housing stocks right now — such as D.R. Horton (DRI), PulteHomes (PHM) and Toll Brothers (TOL) — and also tread cautiously when buying high-dividend mortgage-related real estate investment trusts (mREITs), such as Annaly Capital Management (NLY) or Invesco Mortgage Capital (IVR), both of which have soared of late.
Builders are aware of the housing market problems I’ve detailed here and are peering ahead with a less-than-favorable outlook.
I believe this pullback in builders’ sentiment could signal the start of a new downward trend, and investors should stay away until and unless conditions begin to improve again.
As of this writing, Ethan Roberts did not hold a position in any of the companies mentioned in this article.