The housing market has disappointed investors for several years in a row now, and Sterne Agee analysts Jay McCanless and Annie Worthman argue that consensus expectations for 2015 are once again too optimistic, though Fannie Mae and Freddie Mac’s new programs that allow 3% down payments could give the housing sector a boost.

“If originators take the bait on low down-payment mortgage programs, then unit sale volumes may exceed our estimate of 10.9% y/y order growth in FY15 versus the consensus estimate of 13.3% order growth,” they write. “But given the newness of these programs we do not believe there are enough data to formally make that call yet.”

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Housing – Credit availability remains a concern: Sterne Agee

The reason for the lower forecast is that McCanless and Worthman are still concerned about mortgage credit availability, particularly for prospective first-time and sub-prime homebuyers who had a tough time getting mortgages this year and probably will again in 2015. Fannie Mae and Freddie Mac are specifically targeting these groups with the 3% down payment mortgage programs, but FHFA director Mel Watt downplayed the real scope of these programs during his Senate testimony, so they may not have the impact that some investors are hoping for.

That’s why McCanless and Worthman prefer homebuilders selling to established homeowners who have enough equity in their current home that they can get a new mortgage to move up to a new house. The analysts acknowledge that it’s possible for homebuilders focusing on the lower end of the market to make up for worse margins with better volume, but argue that after looking at the weak sales growth from the last few years this is just asking to be disappointed.

Their top pics are PulteGroup, Inc (which Sterne Agee gives a Buy rating and a $23 price target), WCIC Communities (Buy, $21), and Ryland (Buy, $45).

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Housing – What to look for in early earnings reports

KB Home (Neutral, $18), Lennar (Neutral, $38), and PulteGroup (Buy, $23) have already announced that they will release 4Q14 earnings in January and McCanless and Worthman expect D.R. Horton (Neutral, $23) and Beazer (Buy, $23) to release their F1Q15 earnings in January as well.

They recommend paying particular attention to how homebuilders are preparing for the spring selling season and whether the GSEs’ new mortgage programs will have a significant impact on their business, though this second point is more important for homebuilders that are targeting first-time buyers.