Developments in housing remain crucial for the economy and for stocks. Nearly any account of the housing situation includes reports of the number of foreclosures, the inventory of empty homes, and the potential ARM re-sets that may stimulate even more foreclosure activity.
Any help for distressed homeowners would help to shift the supply curve for homes. This would suggest more stable prices and a lower inventory overhang. Some have speculated that demand has been suppressed by the expectation of further price decreases. If this argument is true, then the foreclosure bill might affect demand as well as supply.
The House has already passed a version of the bill under the leadership of Barney Frank. The Senate Banking Committee is now considering a similar bill. The Chairman, Christopher Dodd remains optimistic that a compromise will be reached.
The Administration is using a veto threat to affect the legislation. Their position is represented in the Senate by Richard Shelby (R- Alabama). Shelby, a former Democrat who switched parties years ago, is calling for more aggressive regulation of the Government Sponsored Enterprises (GSE'S) in the home financing business. He is also concerned about bailing out the undeserving with taxpayer dollars.
Those in favor of the proposal think that the cost of the bill, perhaps $2 B or so, is easily justified by the benefit for the housing market and the economy.
Putting aside our own opinions on the legislation, we believe that the market would react positively to something helping out homeowners. For this reason, it is important to watch the key players, especially Shelby.
Meanwhile, housing remains firmly at the bottom of the sector ratings.
TCA-ETF Update
There has been a lot of movement among the top sectors in the last few weeks. While energy and natural resources choices remain at or near the top, we now also see some technology. All of the financial sectors have again fallen out of the "buy" range.
The percentage of ETF's earning a "buy" signal is down to 53%, well off the recent highs. The overall strength ratings are also not as high as in recent weeks.
Listed below is the weekly update.
