Sterne Agee's Housing Outlook: YOY Growth Expected, Mortgage Availability A Concern

Jay McCanless of Sterne Agee released a 2015 Housing outlook on Wednesday and sees a below consensus unit order growth in fiscal 2015 mainly due to concerns over the availability of mortgage credit.

“We wrote extensively about the lack of mortgage availability for first-time/subprime borrowers in 2014, and our top picks generate 30 percent or less of closings from this group,” McCanless wrote. “We anticipate the same scenario will exist in 2015 because we do not believe banks are being compensated for the tail risk on mortgages.”

McCanless notes that new programs from Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) that allow a 3 percent down payment for borrowers who have not owned a home in three years could make a difference. However, the analyst notes that these programs are new and there is a lack of data to support any working theories at this time.

Looking forward to Homebuilders who will announce earnings, McCanless states he will focus on preparations for the spring selling season and any commentary around new mortgage programs. The analyst also adds that Homebuilders that cater towards buyers with limited income and limited financial means to pay for upgrades will lead to lower gross profits for the firms. As such, companies with a focus on older, “move-up buyers” are recommended, including PulteGroup, Inc. (NYSE: PHM), WCI Communities Inc (NYSE: WCIC) and Ryland Group Inc (NYSE: RYL).