This Dow stock is set to surge off the Fed: Technician

When it comes to investing this year, there’s no place like home.Homebuilding stocks are up more than 7 percent in 2015, widely outperforming the S&P 500 (down 4 percent), as builder confidence in the nation’s housing market has soared to prerecession highs. And according to one top technician, there’s about to be a breakout for one name in particular that’s closely tied to the housing industry: Home Depot.

“This is obviously one of the largest stocks in the market and as the technical expression goes, it acts well,” Carter Worth said Friday on CNBC’s “Options Action.” Home Depot is up more than 10 percent year to date and is the third best-performing stock in the Dow Jones industrial average during that period.

Looking at a one-year chart of Home Depot compared to the consumer discretionary sector and S&P 500 index, Worth, head of technical analysis at Cornerstone Macro, noted the stock’s relative outperformance. “Home Depot has been up 8 out of the last 10 months compared to the market.” Shares of the retailer have risen more than 25 percent in the last 12 months while the S&P 500 is down more than 1 percent and the consumer discretionary sector is up 11.5 percent in the same period.

But perhaps most important to Worth is the stock’s inverse correlation to the U.S. 10-Year Treasury yield. “The torque starts as there was more and more easing from the Federal Reserve,” said Worth. “If you take a look at where QE3 started, that’s exactly where Home Depot really started to explode.” The third round of quantitative easing began in September 2012, and since then Home Depot has rallied 104 percent.

“We learned [Thursday] that the Fed isn’t moving,” said Worth. “We view this as an opportunity to stick with a winner,” he added. “Home Depot is going higher. Buy it.”

Which borrowers would be hurt most by a Fed rate hike: LendingTree CEO

A 'For Sale' sign sits in the front yard of a townhouse in Northeast Washington, DC.

If the Federal Reserve were to increase interest rates at its meeting this week, consumers looking for car and personal loans would be more affected than those seeking mortgages, LendingTree founder Doug Lebda said Tuesday.

Adjustable-rate student loans and credit card rates would also see increases, he said, but added overall that liftoff by the central bank would not make borrowing that much more expensive.

“A quarter-point move in interest rates will have a very negligible impact for consumers. It means about $30 a month on the average mortgage payment,” Lebda told CNBC’s “Squawk Box” in an interview. “I think a move up in rates will signal, if they do it, jobs are getting better and the economy is getting stronger.”

The Fed begins its two-day meeting Wednesday, with a decision on whether or not to increase rates for the first time in nine years Thursday afternoon.

Read MoreJeremy Siegel: How a Fed hike could boost stocks

Meanwhile, the recent turmoil in financial markets, and the subsequent rate fluctuations in the bond market, can actually help consumers save money, Lebda said. “Volatility is actually good for the consumer because it gives you the opportunity to refinance on dips, just like you get to buy stocks when they dip.”

As chairman and CEO of LendingTree, which aims to help consumers comparison shop online for loans, Lebda said “about 60 percent of borrowers take the first [loan] offer they get. You could save a quarter point [or] you could save a half a point by shopping around and getting multiple quotes from different lenders.”

“The most important thing to the consumer is access to credit [which] is improving every day,” he said.

“The pendulum swung very far into absurdity on access to credit,” after the 2008 financial crisis, Lebda added, but said lending standards are getting back to a more normal level. “Lenders are making appropriate risks.”

Mortgage applications plunge 7% ahead of Fed decision

Mortgage borrowers backed away last week, as suspense continued to build ahead of this Thursday’s Federal Reserve decision on the future of interest rates.

Total mortgage application volume decreased 7 percent on a seasonally adjusted basis for the week ending September 11th versus the earlier week, according to the Mortgage Bankers Association (MBA).

The reading included an adjustment for the Labor Day holiday, although the comparison to volume one year ago is skewed because the holiday shifted from the first week in September last year to the second week this year.

Potential homebuyers exit an open house in Redondo Beach, California.

Potential homebuyers exit an open house in Redondo Beach, California.

Applications to refinance, which had a brief surge on a temporary rate drop, fell 9 percent from the previous week, seasonally adjusted. Applications to purchase a home, which are far less rate-sensitive, fell 4 percent week-to-week. Purchase volume has fallen 17 percent in the past four weeks, signaling a potential slowdown in home sales ahead.

Mortgage rates have moved in a very narrow range, hovering just above or below 4 percent for most of this year. Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.09 percent from 4.10 percent, with points increasing to 0.42 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, according to the MBA. They may continue in this range for the rest of the year.

“Given recent economic growth and job market health, we had been expecting a September rate hike, however, given recent financial market volatility and global growth concerns, along with still-low US inflation, we are expecting the first rate hike to be moved to December 2015,” said Mike Fratantoni, chief economist for the MBA.

It is still possible the Fed could make a move this week, and analysts are split as to what a potential rate hike could mean for the housing market. Mortgage rates do not follow directly rate moves set by the Federal Reserve, but instead follow bond yields, which can be affected by Fed moves.

“While lenders may temporarily raise rates, they’ll probably lower them again in a repeat performance of what we saw when the Fed announced it was ending the QE [Quantitative Easing] program: Rates jumped up by almost a point; applications cratered; home sales slowed down; rates returned to lower levels; home sales and loan applications picked back up,” said Rick Sharga, executive vice-president at “Most likely we’ll see slow, incremental rate increases over time as lenders test the waters.”

Rates actually began moving higher Tuesday, as anxiety built among investors ahead of the Fed meeting.

“They want to get to the sidelines before the Fed. As far as bond markets are concerned, ‘sidelines’ means ‘selling bonds,’ which in turn implies higher rates. These extra anxious folks had an outsized effect on rates today [Tuesday], largely because the high-anxiety among the rest of the marketplace didn’t make anyone feel like buying extra bonds right now. All sellers and few buyers means prices tumble and rates rise,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.

Perspective is key in all of this. Mortgage rates are still quite low by historical standards. While higher rates certainly don’t help affordability, a decision by the Fed to raise rates would indicate growing confidence in the strength of the U.S. economy. A strong economy, in the end, is the best thing for housing.

Senate votes to suspend Fannie Mae, Freddie Mac CEO pay

Timothy J. Mayopoulos, president and chief executive officer of Fannie Mae (L), and Donald 'Don' Layton, chief executive officer of Freddie Mac (R).

Timothy J. Mayopoulos, president and chief executive officer of Fannie Mae (L), and Donald ‘Don’ Layton, chief executive officer of Freddie Mac (R).

The U.S. Senate on Tuesday unanimously approved legislation that would suspend the current compensation for the heads of the government-controlled mortgage finance companies Fannie Mae and Freddie Mac following the disclosure of huge pay raises for the officials.

On July 1, the two entities said that Fannie Mae CEO Timothy Mayopoulos and Freddie Mac head Donald Layton will earn $4 million annually, up from their previous salaries of $600,000.

At the time, the pay hikes were opposed by the Obama administration. But the Federal Housing Finance Agency, which oversees Fannie and Freddie, said the lower pay caps hindered efforts to develop reliable CEO succession plans.

Homebuilder sentiment hits 62 in September, highest since 2005

Builder confidence in the nation’s housing market continued its careful climb higher in September. A monthly sentiment index (HMI) from the National Association of Home Builders (NAHB) rose one point to a level of 62, the highest since the end of 2005.

The index has been above 50, the line between positive and negative, since July 2014.

Read MoreMortgage applications plunge 7%

House For Sale

“The HMI shows that single-family housing is making solid progress,” said NAHB Chairman Tom Woods, a homebuilder from Blue Springs, Missouri, in a release. “However, our members continue to tell us that they are concerned about the availability of lots and labor.”

The index was not entirely positive, though. Of its three components, current sales conditions rose one point to 67, but sales expectations over the next six months fell two points to 68. The component measuring buyer traffic did rise two points to 47, but is still in negative territory.

Another index gauging homebuyer traffic, from Credit Suisse, showed a decline in August, “indicating relatively softer trends in the markets most important for builders.”

Read More6% mortgages? What happens to housing

Real estate agents have reported growing price fatigue among potential buyers. The premium for new construction compared to existing homes is currently wider than usual. Homebuilders have been able to raise prices more because there is such short supply of all homes available for sale.

Single family housing starts rose an impressive 12.8 percent in July from June, according to the U.S. Census. Building permits, however, an indicator of future construction, fell 1.9 percent.

“NAHB is projecting about 1.1 million total housing starts this year,” said NAHB Chief Economist David Crowe, referring to both single and multi-family construction. “Today’s report is consistent with our forecast, and barring any unexpected jolts, we expect housing to keep moving forward at a steady, modest rate through the end of the year.”

Looking regionally, on a three-month moving average, home builder confidence rose one point in both the West and Midwest to 64 and 59, respectively. The South posted a one-point gain to 64, and builder confidence in the Northeast dropped one point to 46.

Housing markets hit hardest by a rate hike

This Thursday’s Federal Reserve interest-rate decision may mark the end of a seven-year era of incredibly low mortgage rates and the corresponding high affordability in housing.

The potential move away from a zero interest-rate policy is, for short-term rates, a harbinger of higher mortgage rates ahead and the beginning of the end of this seven-year era of incredibly low mortgage rates and corresponding high affordability.

Forecasts for mortgage rates vary, but indicate a potential increase of 50 basis points (half a percentage point) over the next 12 months. My analysis of loan-level data from Optimal Blue, an enterprise lending- services platform, for the first half of this year demonstrates the impact of such a rate hike on potential buyers.

House for sale

A 50 basis-point increase in the effective mortgage rate could result in:

  • A 6-percent increase in monthly payments on new mortgages. In May, the average loan with a 30-year fixed mortgage was $231,000, which had a monthly principal and interest payment of $1,107 at the average interest rate of 4.03 percent. When rates reach 4.53 percent, that same loan amount would result in a monthly payment of $1,175, an increase of 6 percent.
  • As much as a 7-percent rejection of mortgage applications. The increase in the monthly debt burden as a result of higher rates will stress the upper limits of loan- and debt-to-income ratios for new loan applicants. Based on analysis of loan-level ratios for a large sample of loans approved in the first half of this year, as much as 7 percent of mortgage applicants would have failed to get approval.
  • Average debt-to-income ratio to increase by 4 percent. The average debt-to-income ratio for mortgages in the first half of 2015 was 35.5 percent. With an increase of mortgage rates by 50 basis points and keeping all other factors equal, the average debt-to-income ratio increases by 4 percent to 37 percent.
  • Popularity of loan types will likely shift with rate increases. In the first half of this year, conventional mortgages were most popular, capturing 50 percent of the market, followed by 31 percent FHA, and 12 percent VA. Under the modeled higher rate scenario, conventional and jumbo mortgages were most likely to hit an upper limit on debt-to-income ratios, and VA and FHA loans were least likely to hit an upper limit.

The potential impact to borrowers also varies dramatically by geography. High cost markets and markets where first-time buyers have been just barely able to qualify this year are most at risk of seeing more failed mortgage applications as a result of higher debt burdens triggered by higher rates.

Most impacted markets (those with 10 percent or more by percentage of potential failed applications):

  1. Honolulu – 14 percent
  2. Stockton, Calif. – 12 percent
  3. Fresno, Calif. – 12 percent
  4. El Paso, Texas – 11 percent
  5. Fort Pierce, Fla. – 11 percent
  6. San Diego – 11 percent
  7. Visalia, Calif. – 11 percent
  8. Chattanooga, Tenn. – 10 percent
  9. Los Angeles – 10 percent
  10. Miami – 10 percent
  11. Modesto, Calif. – 10 percent
  12. Reno, Nev. – 10
  13. Sacramento – 10 percent
  14. San Francisco – 10 percent

Commentary by Jonathan Smoke, the chief economist for, where he analyzes the residential real estate market, local market conditions, and consumer demand for apartments and homes

US housing starts take a breather, permits rebound

Open House signage is displayed outside of a home for sale in Redondo Beach, California.U.S. housing starts fell more than expected in August, but a rebound in building permits pointed to sustained strength in the housing market, which should support economic growth.

Groundbreaking dropped 3.0 percent to a seasonally adjusted annual pace of 1.13 million-units, the Commerce Department said on Thursday. July’s starts were revised down to a 1.16 million-unit rate from the previously reported 1.21 million-unit pace.

Despite the fall, which reflected declines in groundbreaking on single and multifamily projects, starts remained above a one million-unit pace for the fifth straight month. Economists polled by Reuters had forecast groundbreaking on new homes falling to a 1.17 million-unit pace last month.

Building permits increased 3.5 percent last month to a 1.17 million-unit pace, after declining 15.5 percent in July.

A tightening labor market has unleashed pent-up demand for housing, especially among young adults. A report on Wednesday showed confidence among homebuilders advancing to a near-decade high in September.

The strengthening housing market, also marked by rising home sales and higher prices, is another segment of the economy that is supportive of an interest rate hike by the Federal Reserve. But the case for higher borrowing costs has been undermined by recent global financial markets turmoil.

The U.S. central bank’s policy-setting committee resumes a two-day meeting on Thursday and is scheduled to announce its decision on interest rates at 2 p.m. (1800 GMT). The decision whether to raise the Fed’s short-term interest rate from near zero is seen as a close call.

In August, groundbreaking for single-family homes, which accounts for the largest share of the market, fell 3.0 percent to a 739,000 unit pace. Single-family home building in the South, where most of the home construction takes place, rose 9.2 percent to the highest level since December 2007.

Starts for the volatile multifamily segment fell 3.0 percent to a 387,000 unit rate. Single-family building permits rose 2.8 percent in August to their highest level since January 2008. Multi-family building permits rose 4.7 percent.

Architects’ billings in August signal construction slump

A leading indicator of commercial construction activity took a steep drop in August, possibly due to increased volatility in financial markets.

The American Institute of Architects reported its Architecture Billings Index (ABI) dropped from 54.7 to 49.1. Anything below 50 indicates a decrease in design services.


“Over the past several years, a period of sustained growth in billings has been followed by a temporary step backwards,” said AIA Chief Economist Kermit Baker. “The fact that project inquiries and new design contracts continue to grow at a healthy pace suggests that this should not be a cause for concern throughout the design and construction industry.”

The ABI reflects the time between architecture billings and construction spending for commercial real estate, which is approximately nine to twelve months. Another index of new projects inquiries also fell in August, although it was still positive.

“I do think that volatility is the issue, just like we’re seeing in a lot of the markets across the country. We’re not seeing a normal incline in terms of activity. It shoots ahead and then it catches its breath,” said Baker.

He also points to hurdles facing builders, which include high material costs and labor shortages.

The construction industry has been plagued by a labor shortage. Eighty-six percent of construction firms surveyed in July and August by Associated General Contractors of America said they were having difficulty filling hourly craft or salaried professional positions.

“Few firms across the country have been immune from growing labor shortages in the construction industry,” said Stephen Sandherr, CEO for the Associated General Contractors, in a release. “The sad fact is too few students are being exposed to construction careers or provided with the basic skills needed to prepare for such a career path.”

Thousands of immigrant construction workers also left the U.S. during the recession and have yet to return.

Chase Mortgage CEO red flags FHA loans

JPMorgan Chase

JPMorgan Chase may be the second-largest mortgage lender in the nation, but when it comes to government-backed, low down-payment Federal Housing Administration loans, it’s not even in the top 100. Onerous regulations and the constant threat of litigation have all but stalled originations of these loans, which were originally designed to help first-time homebuyers with lower credit scores and less cash.

“FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down; that’s subprime lending, and we’re not in the subprime lending business,” said Kevin Watters, CEO of Chase Mortgage Banking.

Chase Mortgage has not stopped doing FHA loans entirely, but its FICO requirements are far higher, and its loans are more expensive to price in the added risk.

“It’s not just the CFPB or Fannie and Freddie’s rules or Treasury’s rule’s or Ginnie Mae, who’s the servicer for FHA—you’ve got 584 different state and local rules too. So you’re trying to make sure you abide by all these different rules, and it just gets very complicated, very expensive, so for us in FHA, we’ve priced FHA for the risk we see in FHA, and so we’ve got a higher price than other people so customers are going to other places,” said Watters.

Independent lenders have picked up the FHA slack from big banks but that comes with added risk for which Ginnie Mae is ill-equipped, according to Ginnie Mae’s own president, Ted Tozer.

“Today almost two-thirds of Ginnie Mae guaranteed securities are issued by independent mortgage banks. And independent mortgage bankers are using some of the most sophisticated financial engineering that this industry has ever seen,” said Tozer in a speech Monday in Arlington, Virginia. “We are also seeing greater dependence on credit lines, securitization involving multiple players, and more frequent trading of servicing rights—all these things have created a new and challenging environment for Ginnie Mae.

Frankly, as we look forward to the future, I do not believe that we have a large enough engine to deal with the steep hill in front of us. In other words, the risk is a lot higher and business models of our issuers are a lot more complex. Add in sharply higher annual volumes, and these risks are amplified many times over.”

Ginnie Mae has asked for a $5 million increase in its budget, but so far Congress has denied it. Combined with the fact that some of these independent lenders are very small, that only increases risk.

Chase isn’t the only bank backing away from FHA. The largest mortgage lender in the nation, Wells Fargo, also raised minimum FICO scores for its FHA borrowers. Realtors say the big bank move away from this low down-payment option is hurting the housing recovery, specifically

“I believe that it will have a measurable impact in holding back some of the first time buyers,” said Lawrence Yun, chief economist of the National Association of Realtors. “Therefore I think from a government policy point of view, they need to look at, very broadly, any mistake the lender has done or broken the law and go after it, but any uncertain lawsuit that comes out of right and left [field], that’s going to hold back the market recovery.”

Home sales dropped off in August, down far more than was expected. First-time homebuyers are still at less than one third of the market. Historically, they normally account for more than 40 percent of homebuyers.