Housing stocks rise as investors react to government deal
Sterne Agee analyst: It’s a short-term gain, risks lie ahead
The HW 30 – a composite of housing and mortgage finance stocks – rose nearly 1% Thursday as the government reopened, allowing agencies like the Federal Housing Administration to return to the business of handling FHA loans.
While the effects of any slowdown at the FHA were limited during the shutdown, the housing market spent weeks worried an extended closing would impede lenders’ ability to verify important tax information, while creating longer loan processing timelines with the FHA operating at reduced staffing levels.
Instead, the government treated the market with a temporary deal Thursday, reopening federal offices nationwide and temporarily lifting the debt ceiling after three and half weeks of stalemate.
The move sent HW 30 stocks soaring, but analysts are already calling it a short-term, sugar high and not a robust comeback with long-term strength.
Investors definitely breathed a sigh of relief after the deal was struck, Sterne Agee chief economist, Lindsey Piegza, admitted near Thursday’s market close.
Most major stock indices rose, with some homebuilder stocks rising well over 4%.
But it’s not over yet.
"We didn’t necessarily get a long-term deal, but the government is back open and that is going to reinstate some calm in the market," Piegza told HousingWire.com.
But she notes, today’s positive trading is based on a very short-term view. The government merely kicked the can down the road and has yet to pass a long-term, viable solution. A few months from now, the temporary solution enacted Wednesday will require more debates over government spending and debt to push the markets forward again.
For builders already facing confidence issues, it’s unlikely this is a long-term stimulus, Piegza suggested.
Until builders see “long-term, sustainable job and income growth, we will not have the momentum to drive the housing recovery beyond what we have already seen, which is a slow, tepid recovery,” Piegza pointed out.
Still, REITs such as American Capital Agency Corp. (AGNC), Annaly Capital Management (NLY), Redwood Trust (RWT) and Two Harbors (TWO) rose during Thursday trading, with American Capital shooting up 4.50% alone.
While these stocks likely benefited from the recent dose of government confidence, Piegza rebuts the notion that the government shutdown caused the housing market to lose steam. Moving from the third to fourth quarter, Piegza says Americans were already showing signs of declining consumer spending before Congress closed the federal government.
Real estate brokerage RE/MAX (RMAX) put out a report Thursday, showing a notable decline in home sales and prices between August and September. While both indicators were up over last year, signs of a slowing market appeared in the late summer-early autumn period.
RE/MAX’s own stock, which is fairly new to the stock exchange, was down 2.5% Thursday.