How Lower Mortgage Rates Could Help Housing ETFs

A new Treasury plan to lower mortgage rates is getting some criticism, but the health of related exchange traded funds (ETFs) could change.

Mortgage rates could be falling to 4.5% if the plan goes through, but many feel that this will stem the bleeding for a short time, and let homebuilders stocks get ahead.

Although homebuilding stocks did have a rally, critics feel that the housing prices simply must come down, reports Aaron Task for Tech Ticker on Yahoo Finance.

The Treasury has the view that if rates are pushed downward for a loan to purchase a home in the United States, the market could get a revitalization. Falling housing prices and the glut of foreclosures are the undermining factors to address before an economic turnaround can occur, reports Deborah Soloman and Damian Paletta for The Wall Street Journal.

The plan is still in its infancy, but the major idea is to use the names of heavies such as Fannie Mae and Freddie Mac, and encourage banks to lend at 4.5%, one full percentage point lower than the standard. Borrowers have taken to the idea, as the number of refinance applications have nearly tripled.

Applications to purchase homes did jump, but at a small rate, and are less in lockstep with interest rate movements. Even with this plan, the application rates are just not impressive and volume remains lower than it was in March, reports Ruth Simon for The Wall Street Journal. The major focus is rather on how long will these rates sustain, and then it can actually be beneficial for the sales of homes.

Lower mortgage rates could encourage would-be buyers to come out of the woodwork, and give life to home housing-related ETFs once again:

• SPDR S&P Homebuilders (XHB): down 37.1% year-to-date

• iShares Dow Jones US Real Estate Fund (IYR): down 50.4% year-to-date

• First Trust S&P REIT Index (FRI): down 53.9% year-to-date

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