Case-Shiller - 6/25/13

TRADEX GLOBAL INTERNAL COMMENTARY

Home Prices Beat Expectations:

The S&P Case-Shiller property values increased 12.1% from April 2012; the biggest year-over-year gain since March 2006. A short supply of homes and record low mortgage rates have fueled a substantial rise in home prices. This is very positive for the non-agency RMBS bonds we own in the Liquid Real Estate Portfolio. Most of the economists estimated that the increase would be lower than 12.1%, so this was a surprise even to the experts. The 20 cities in the index all showed gains, the largest gains were 23.9% in San Francisco and 22.3% in Las Vegas. The smallest gain was in the already robust market of NY, with a 3.2% rise. We are very constructive on RMBS and CMBS as household formations are increasing again and these new young buyers or renters will need places to live. In CMBS the pace of new construction in the last 5 years (other than multifamily) has been almost nonexistent. This maintains a low vacancy rate for businesses and retail outlets. The numbers this morning are positive and important, as the Fed has indicated it will try to pass the economy off to the private sector.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Home prices climbed more than forecast in the 12 months through April, rising by the most in more than seven years and showing further strength in the U.S. housing market. The S&P/Case Shiller index of property values increased 12.1 percent from April 2012, the biggest year- over-year gain since March 2006, after advancing 10.9 percent a month earlier, a report showed today in New York. The median forecast in a Bloomberg survey of 28 economists called for a 10.6 percent advance. Short supply, record-low mortgage rates and an improving job market combined to boost housing demand and spark the rebound in prices. The recovery is probably far enough along to overcome the recent surge in borrowing costs after Federal Reserve policy makers said they may trim unprecedented accommodative measures meant to spur the expansion. “Housing’s doing really well and I don’t think the backup in mortgage rates to date is going to derail it,” said Brian Jones, senior U.S. economist in New York at Societe Generale, who projected a 12.3 percent rise in home prices. “We’re still well off the highs, but price increases could continue for the next several years.” Bloomberg survey estimates ranged from increases of 9.9 percent to 12.3 percent. The S&P/Case-Shiller index is based on a three- month average, which means the April data were influenced by transactions in February and March.