Morning Report - Party like its 1999.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1544.0	6.9	0.45%
Eurostoxx Index	2698.8	15.8	0.59%
Oil (WTI)	90.51	-0.3	-0.34%
LIBOR	0.28	-0.002	-0.53%
US Dollar Index (DXY)	82.2	0.114	0.14%
10 Year Govt Bond Yield	1.94%	0.04%
RPX Composite Real Estate Index	195.2	0.1

Party like its 1999. Markets are stronger after the Dow set a record high yesterday. The S&P 500 has about 40 points left to hit a record as well. NASDAQ, well.. about another 60% needed there. No real market-moving news this morning.  Mortgage applications rose 14.8% last week as rates fell. Bonds and MBS are victims of the "risk on" trade and are moving lower.

The ADP February Employment Report estimated jobs increased by 198k last month, higher than the Street estimate of 170k. This probably means the street estimate for non-farm payrolls scheduled to be released on Friday is low at 160k. The increase was mainly in services. On the good-producing side, construction drove the increase. Coupled with the consumption numbers we have seen, it appears that the real economy is taking the Jan 1 tax increases in stride. Perhaps the sequester will end up being a nonevent as well.

Altos is forecasting home prices will rise 10% in 2013, which puts them at the high end of estimates. They cite three big indicators all pointing to higher prices:  First, the percent of homes with price reductions is falling, and below a normal market.  A normal reading is 38%, which makes sense - you overprice and if no one bites, you go lower.  A weak market would have price reductions in the 40% - 50% range, while a hot market would have about 15%.  We are currently at 28%, somewhere between "normal" and "hot."  Blame professional investors and low inventory. Second, the price of newly-listed properties is on the upswing.  Third, median days on the market is falling.  Quickly.

So what happened to this massive glut of supply that was supposed to hit the market?  Well, first of all, new home construction has been anemic. Yes, housing starts have been increasing at a pretty good clip, but we are still not cracking a million per year pace, and 1.5 million a year has been the historical norm. Second, now that prices are increasing, many homeowners who are under no pressure to sell are deciding to hang on a little longer. Finally, the government is doing everything it can to stimulate demand (through FHA lending, QE, etc) and decrease supply (through HARP, HAMP, and other refi programs to keep people in their homes). So far, 2013 is shaping up to be a year of high-ish price appreciation in the context of restricted supply.