Homes Prices & Case-Shiller Updates, September 26th

TRADEX GLOBAL INTERNAL COMMENTARY

FHFA reports a 0.2% rise in home prices in July, based on Fannie and Freddie mortgages.  The June gain was revised to 0.6%, from a previously reported 0.7%.  Prices compared to July 2011 are up 3.7% (does anyone remember “HPA”?).  Case-Shiller reported a slightly different number of a 0.4% gain.  It is constructed differently, using 3 months worth of data rather than 1 month.  Either way, this is positive news and long awaited!  We think that this sector has seen the worst and is poised for improvement.  Keep nimble - Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Home Prices

U.S. house prices rose a seasonally adjusted 0.2% in July, according to the Federal Housing Finance Agency's monthly house price index based on Fannie Mae or Freddie Mac mortgages. June's gain was revised to a 0.6% gain from a previously reported 0.7% increase. Compared to July 2011, FHFA reports prices are up 3.7%. Earlier, S&P reported the Case-Shiller 20-city composite index rose 1.6% in July, or a 0.4% gain after seasonal adjustment. The Case-Shiller index is constructed differently and also includes three months rather than one months of transactions as the FHFA index does.

Case-Shiller

Home prices posted their first six month winning streak in three years, according to the S&P/Case-Shiller indexes. The composite 20-city home price index, a key gauge of U.S. home prices, was up 1.6% in July from the previous month and increased 1.2% from a year earlier. Sixteen of the 20 cities posted annual increases in July. Atlanta, Chicago, Las Vegas and New York notched annual declines. Every city posted a monthly increase compared to June. “While the index, and prices more generally, remain well below pre crisis levels, the improvement in the last few months has been noticeable and perhaps more importantly, more rapid than previous episodes of fleeting improvement,” said economists at BTIG Economics. But they added some caveats: “While we have been ‘housing enthusiasts,’ we want to stop short of sounding too encouraged. There is almost no doubt that some of the improvement seen of late has to do with less short and foreclosure sales which in turn helps boos aggregate pricing data.”

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

MBA Mortgage Applications; Week of September 21

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications dropped last week by a small amount, -0.2% in total.  The story here is that applications for new homes dropped 3.8% from the prior week, but refinance activity rose by 0.80% and accounted for 81% of all applications.  The fixed 30-year mortgage rate was down 3 basis points to 3.72%.  We are carefully watching the rate of prepays (refinancing) and how that will affect our IO’s (interest only securities).  We still believe that the rate of refi’s is peaking and most borrowers who could refi have done so or are in the process.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for home mortgages dipped last week, though demand for refinancings rose as mortgage rates fell to a record low, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, edged down 0.2 percent in the week ended Sept 14. The seasonally adjusted index of refinancing applications gained 0.80 percent. The gauge of loan requests for home purchases, a leading indicator of home sales, tumbled 3.8 percent. The refinance share of total mortgage activity rose to 81 percent of applications from 80 percent the week before. Fixed 30-year mortgage rates fell 3 basis points to average 3.72 percent, the lowest rate in the history of the survey. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Existing Home Sales; Week of September 21

TRADEX GLOBAL INTERNAL COMMENTARY

Sales of existing previously owned homes climbed to the highest levels in 2 years.  Purchases increased 7.8% to a 4.82 million annual rate.  These are great numbers and it shows that the lowest mortgage rates in history and slowing foreclosures is actually working.  The last quarter posted its first year-over-year gain in prices which could induce sellers and buyers back into the market.  We believe that the housing market has bottomed and our liquid real estate assets are doing well.  The world may be very scary in many different investment sectors, but we believe that the real estate sector has a fair amount of upside. Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

                                    

Sales of previously owned homes and work on single-family projects climbed in August to the highest levels in two years, signaling the residential real-estate market is contributing to the U.S. economic recovery. Purchases of existing houses increased 7.8 percent to a 4.82 million annual rate, the most since May 2010, figures from the National Association of Realtors showed today in Washington. The median forecast of 78 economists surveyed by Bloomberg called for sales to increase to a 4.56 million pace. Commerce Department data showed builders began work on the most one- family homes since April 2010. Record-low mortgage rates, more affordable properties and limited supply of new homes are driving orders at builders such as Toll Brothers Inc. (TOL) and Hovnanian Enterprises Inc. (HOV) In addition, sales of distressed properties are starting to account for a smaller share of the market, leading to gains in home values that are laying the groundwork for a sustained economic expansion as household sentiment and finances improve. “The nascent housing recovery has deepened,” said Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York, who projected existing-home sales would climb to a 4.85 million rate. “Ultimately, this improvement will lead to a rise in residential wealth, which tends to lift consumer confidence and spending.” The Standard & Poor’s Supercomposite Homebuilders Index (S15HOME) rose 3.1 percent at the close in New York, while the S&P 500 gained 0.1 percent. The pickup in housing helps explain why the index of builder shares, including PulteGroup Inc. and D.R. Horton Inc., has surged 83 percent this year, outpacing a 16 percent gain in the broader S&P 500.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Jobless Claims: Week of September 21

TRADEX GLOBAL INTERNAL COMMENTARY

The number of new jobless claims came in “slightly” lower than the week before and higher than consensus.  The week ending September 8th was also revised up 3k to 378k.  The four-week moving average (which is more important) moved up to 378k.  The Labor Department believes that this is a clean number and is not distorted by Tropical Storm Isaac.  I can only say that we are not going fast enough in the right direction to get unemployment down!  QE1 & QE2 did not help create enough jobs and we highly doubt that QE3 will either.  The Fed is set to buy more MBS than are available (maybe that is the new math norm?).  If that has a positive effect on the jobs numbers, I will really be surprised.  Keep very nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The number of U.S. workers filing applications for jobless benefits remained elevated last week, showing that the labor market is still struggling to sustain improvements. In a separate report, the Conference Board's index of leading economic indicators fell 0.1% in August, suggesting little momentum for the U.S. economy. Initial jobless claims, a measure of layoffs, were down by 3,000 to a seasonally adjusted 382,000 in the week ended Sept. 15, the Labor Department said Thursday. But claims for the week ended Sept. 8, which were revised up to 385,000 from an initially reported 382,000, were elevated because of business closures after Hurricane Isaac, the Labor Department said. Last week's figure is above expectations. Economists surveyed by Dow Jones Newswires forecast 373,000 new applications for jobless benefits last week. The four-week moving average of claims - which smooths out weekly data - increased by 2,000 to 377,750. That is the highest level since the week ended June 30. A Labor Department economist said there was nothing unusual about the most recent week's data. In the prior week, about 9,000 additional claims were a result of the storm that hit several Gulf Coast states and Puerto Rico in late August, he said. Layoffs trending higher is likely a concern to Washington policy makers. Federal Reserve officials continue to closely monitor the employment data and said last week the central bank would start buying $40 billion of mortgage-backed securities—with the goal of lowering interest rates—every month until the job market improves. "The idea is to quicken the recovery to help the economy begin to grow quickly enough to generate new jobs and reduce the unemployment rate," Fed Chairman Ben Bernanke said at a news conference. The claims report Thursday showed the number of continuing unemployment-benefit claims—those drawn by workers for more than a week—dropped by 32,000 to 3,272,000 in the week ended Sept. 8. Continuing claims are reported with a one-week lag. The number of workers requesting unemployment insurance was equivalent to 2.6% of employed workers paying into the system in the week ended Sept. 8. The rate has remained constant since mid-March. Meanwhile, the Conference Board said its leading index fell 0.1% last month after a revised 0.5% gain first reported as 0.4%. The index has fallen in three of the last six months as the recovery has struggled for traction. Economists surveyed by Dow Jones Newswires expected the index to be unchanged. "Weak domestic demand continues to be a major drag on the economy," said Ken Goldstein, an economist at the board. In August, only four of the 10 leading indicators increased. Stock prices were among the positive indicators. For the second month in a row, the biggest negative was the new-orders index compiled by the Institute for Supply Management. The board also said its coincident index increased 0.1% in August after an unrevised 0.3% gain in July. The lagging index increased 0.2% after a revised 0.3% advance, first reported as 0.4%.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

Feedback from the Opal Family Office and Private Wealth Management Conference

Interesting responses from the attendees of this year's Opal Family Office and Private Wealth Conference in Newport, RI:

- More than half of respondents (55%) expect the investing environment to be choppy, with mostly sideways movement for the next 3-5 years.
- Income is considered very (46%) or somewhat (31%) important to respondents’ investment strategy.
- Three-in-four respondents (75%) consider alternative investments as strategic (defined as 10% or more) of their portfolio, while half (48%) consider them a primary component (30% or more).
- Four-in-five respondents (78%) expect to increase their allocation to alternatives over the next three years.
- Three-in-five (58%) of respondents have used alternatives specifically to generate income.
- Respondents said liquidity (31%), transparency (22%) and track record (22%) are factors that limit investing more in alternatives.
- When asked which alternative investment vehicle structures they would consider, respondents cited hedge funds (35%), structured product (21%), exchange traded funds (15%) and fund of funds (12%).
- Respondents said the following investments exhibit the greatest potential in the next few years; other alternatives (29%) real estate (23%), stocks (16%), venture capital (14%), commodities (12%), bonds (5%) and Treasuries (1%)
- Respondents expect their investing to change as follows; more direct investing (39%), more investing through managers (15%), and more co-investing with other family offices (14%).
- Economic headwinds causing the most worries; the European debt crisis (24%), global economic slowdown (21%), U.S. Presidential election (19%) and U.S. recession (11%).

MBA Mortgage Applications, Week of August 27-31

TRADEX GLOBAL INTERNAL COMMENTARY

The total number of mortgage applications fell 2.5% last week, despite the decline in interest rates.  The refinance index declined 3% from the previous week to its lowest level since May.  The percentage share of total applications to refinance stayed at 79%.  Two things that we have been saying are now apparently happening: 1) Refinancings have slowed and may have already peaked (this is very good news for our IO positions), and; 2) Tougher lending standards and economic uncertainty are still keeping potential new home buyers on the sidelines.  We still believe that housing prices are bouncing around at the bottom (which is good for our distressed RMBS positions), and after seeing the Case-Shiller report we have some confidence in HPA (house price appreciation). Housing is not totally out of the woods, but we are confident that the sector will deliver positive results inside the Tradex portfolios.  Keep nimble - Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The number of total mortgage applications filed in the U.S. last week fell 2.5% despite a decline in interest rates, the Mortgage Bankers Association said Wednesday. The refinance index declined 3% from the previous week to its lowest level since May, according to the MBA's weekly survey, which covers more than three-quarters of all U.S. retail-residential-mortgage applications. On a seasonally adjusted basis, the purchasing index slipped 0.8% from a week earlier, MBA said. Low interest rates have attracted many homeowners to refinancing deals, though tougher lending requirements and economic uncertainty still keep many prospective home buyers from taking out new debt. The share of applications filed to refinance an existing mortgage was unchanged from the prior week at 79% of total applications. Adjustable-rate mortgages rose to 5% of total activity from 4% a week earlier. The average rate on 30-year fixed-rate mortgages with conforming loan balances slipped to 3.78% from 3.8% in the previous week. Rates on similar mortgages with jumbo loan balances edged down to 4.05% from 4.06% a week earlier. The average rate on FHA-backed 30-year fixed-rate mortgages declined to 3.54% from 3.6% in the prior week. The average for 15-year fixed-rate mortgages eased to 3.1% from 3.12% a week earlier. The 5/1 ARM average slid to 2.64% from 2.68% in the prior week.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global