Housing Market Still Suffers Mortgage Hangover

At current levels, home prices are down 35.0% from the bubble highs. Since the year 2000, the 20-City Composite is up 34.1%, and would have to decline by another 25.4% to return to those levels.

Troubles in the housing and mortgage markets were reflected in the Conference Board's reading on Consumer Confidence, which fell to 64.9 in May from 68.7 in April, as this series remains well below its 90-to-120 neutral zone.

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This week Freddie Mac reported that its posted 30-year fixed-rate mortgage rate fell to a record low of 3.75%, with the 15-year mortgage down to 2.59%.

With the yield on the 10-year Treasury at a record low of 1.55%, the spread to the 30-year rate is wide at 220 basis points.

Even so, banks are reluctant to lend construction and development money to homebuilders and to approve mortgages for potential home buyers.

Given this difficult mortgage market and the continued pressure on home prices primarily caused by the sales of depressed homes from ORE O, I reiterate that it's time to book profits on stocks of homebuilders.

On May 17 I wrote as much and showed the weekly chart for the PHLX Housing Sector Index (HGX), which failed on a down trend that goes back to 2005.

The weekly chart shifts to negative for HGX on a close today below the five-week modified moving average at 124.65, which would indicate risk to the 200-week simple moving average at 101.56. This scenario is enhanced by the fact that momentum (12x3x3 weekly slow stochastic) reading declined to 56.98 from 68.14 two weeks ago in my last report covering the housing market.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.