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TheStreet Open House

Real Estate ETFs Need Jobs Boost

NEW YORK ( TheStreet) -- Over the past year, the real estate sector has been on somewhat of a roller coaster ride as the federal government has poured billions of dollars worth of incentives its way to add stability. However, recent data indicate the sector is far from being stable.

Most recently, the Commerce Department indicated that new-home sales slumped to an all-time low and the National Association of Realtors stated that sales of previously owned homes unexpectedly dropped 7.2% in January, after witnessing a record decline in the month before. This resulted in overall pending home sales seeing a decline of 7.6% in January.

Despite the extension of government-funded programs, like the first-time homebuyer tax credit, factors such as a weak job market, stricter lending standards, higher fees charged by lenders and a weak consumer sentiment over the health of the economy are taking their toll on the sector.

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The Federal Reserve has pushed lending rates to near record lows, but many are unable or unwilling to make use of these rates. In fact, a recent study indicated that new refinance applications were at their lowest levels over the past year. The primary reason behind this is that homeowners just can't get refinancing because they have negative equity in their homes and no collateral to back the value of their homes. Also, the pain of falling home values doesn't seem to be easing.

As loan delinquencies skyrocketed over the past 18 months, lenders like Freddie Mac (FRE) have started to charge high fees to refinance or obtain new loans. In some cases, these fees can reach as high as 1% of the total loan amount. This low interest rate, high-fee environment has deterred homeowners from seeking refinancing.

To make things even more challenging, the Fed plans on ending its purchase of mortgage-backed securities program later this month, which will likely result in an increase in overall borrowing costs. In addition to the woes seen on the borrowing front, increases in foreclosures, which saw a 15% jump in January from a year earlier, are likely to have a negative impact on home values and the overall sector.

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