Markets appeared to respond to continued downward pressure over the government shutdown and potential debt default, with ETFs tracking home builders displaying negative sentiment over the future of the housing market.
The SPDR S&P Homebuilders ETF ($XHB) fell almost 2 percent, the iShares Dow Jones US Homes Construction ETF ($ITB) lost just over 2 percent, and the PowerShares Dynamic Building & Construction ETF ($PKB) was off just under 1 percent.
Uncertainty Over Government Policy
Continued uncertainty over government policy is likely the larger culprit for driving down ETFs tracking construction ETFs. With much up in the air, the future of the housing market is unclear. Mortgage interest rates are likely to rise should the Federal Reserve end its bond-buying program. There was ample ongoing debate over the Fed’s plans about this prior to the shutdown, and a new chairperson in Janet Yellen is only adding to that uncertainty. Concern over a potential debt default remains a serious one, and the government shut-down has dramatically slowed the mortgage approval process. With so many question marks outstanding, construction equities felt the crunch on Tuesday morning.
Shiller Says Prices Okay for Now
Potentially contributing to this uncertainty were comments made by Yale economist Robert Shiller over the last few days. Fresh off his Nobel Prize win, Shiller gave an interview on CNBC’s Squawk Box Tuesday morning in which he described the housing market as “still a risky market." Robert Shiller’s comments on Bloomberg were restrained, stating that he believed the current state of home prices was largely consistent with what one would expect.
"Home prices right now are just reasonable. They are where they have been for a century in real terms. They are not high or low. They are OK," he said.
However, he did describe certain markets at being “bubbly,” expressing concern that the rapid increase in certain markets, citing Las Vegas and San Francisco, as showing particularly sharp gains over the last year.
ETFs Retreating from Mid-September High
The current losses continue a fall from highs reached in Mid-September. The SPDR S&P Homebuilders ETF has fallen almost 4.5 percent since September 18th, with the iShares Dow Jones Home Contruction ETF off just over 4.5 percent over the same period.