Morning Report - Fannie Mae's Economic and Housing forecast for 2013

Vital Statistics:

	Last	Change	Percent
S&P Futures	1445.2	4.1	0.28%
Eurostoxx Index	2659.8	16.3	0.62%
Oil (WTI)	88.4	0.5	0.53%
LIBOR	0.31	0.001	0.32%
US Dollar Index (DXY)	79.04	-0.319	-0.40%
10 Year Govt Bond Yield	1.82%	0.00%
RPX Composite Real Estate Index	191.9	0.2

Markets are higher this morning on optimism over the fiscal cliff.  John Boehner introduced a Plan B yesterday in case bipartisan talks fail, but markets / observers still seem optimistic that a deal can get done. Bonds and MBS are flat

Housing starts came in at an annualized 861k pace in November, somewhat below expectations.  This is undoubtedly a Sandy-influenced number.  Building Permits came in at 899k, above expectations. This is the strongest 3 months in four years. The NAHB Builder Confidence Index rose in Dec. Overall, the housing sector has turned the corner and is now an engine for growth, not a drag.

Fannie Mae is out with their Economic and Housing Outlook for 2013.  Here is their forecast for 2013:

• GDP +2.2%
• Unemployment 7.5%
• 10 year bond yield: 1.7%
• Housing starts:  949k
• House Price appreciation:  + 1.7%
• 30 year fixed rate mortgage 3.4%
• Purchase originations + 15%
• Refinances: - 29%

I am surprised at their forecast for a drop in refis given that they think rates will stay low.

Peter Eavis of the NY Times discusses the state of play with the qualified mortgage.  Consumer advocates are pushing for a broad definition of a qualified mortgage in order to increase credit availability, but they are are reluctant to give banks any legal protection. The big banks are saying that they won't relax credit standards unless they are given some protection. Consumer advocates point out that that a shield will still presume the banks have met the standards, and merely allows the consumer to rebut that presumption, which means the lender has the upper hand to begin with.

Given the focus on the election and the fiscal cliff, fears of a European implosion seem to have fallen by the wayside.  The markets seem relatively sanguine about the prospect of a Euro debt crisis as sovereign yields have fallen since early Summer. Here is a chart of the Greek 10-year bond yield, post-re-org:

Actually, it isn't just Greece - all of the PIIGS are flying. All things considered this is a huge accomplishment.  Time should have named Mario Draghi Person of the Year instead of Barack Obama.