Morning Report - Highest home price appreciation since Feb 2006

Vital Statistics:

	Last	Change	Percent
S&P Futures	1606.5	-0.2	-0.01%
Eurostoxx Index	2597.2	-25.4	-0.97%
Oil (WTI)	98.8	0.8	0.83%
LIBOR	0.273	0.000	-0.07%
US Dollar Index (DXY)	83.42	0.368	0.44%
10 Year Govt Bond Yield	2.48%	0.00%
Current Coupon Ginnie Mae TBA	102.8	0.1
Current Coupon Fannie Mae TBA	101.5	-0.1
RPX Composite Real Estate Index	204.5	-0.8
BankRate 30 Year Fixed Rate Mortgage	4.34

Markets are flattish on no real news. Later on today, we will get the ISM New York, Factory Orders, IBD / TIPP Economic Optimism and Vehicle Sales. None of these releases should be market moving. Bonds and MBS are flat.

The Fed votes on the Finalized Basel III rules today. For originators, the most important part of this will be the treatment of mortgage servicing rights. Basel III requires banks to over-reserve for MSRs once they reach a threshold point as a percent of capital. MSRs had been under pressure for quite some time in anticipation of the rule, but now that rates are rising, you are starting to see cheeky bids for newly-originated MSRs. For LO's, the value of MSRs affects the value of SRPs which influences your ratesheet.

The CoreLogic Home Price index rose 12.2% in May, which was the highest price increase since Feb 2006. Excluding distressed sales, prices rose 11.6%. Home prices nationwide remain 20.4% below their peak which was set in April 2006. The Pending Home Price Index indicates that prices are expected to rise even more (13.2%) in June. These sales would have had contract signings before interest rates started backing up, so you can't read too much into how higher rates are affecting home prices, but the pending home price index is encouraging. 

12 month home price appreciation:

• Arizona - 16.9%
• California - 20.2%
• Connecticut - 3.8%
• Florida - 11.1%
• Nevada - 26%
• New York - 9.8%
• North Carolina - 5.6%
• Tennessee - 5.3%
• Texas - 8.5%

In anticipation of Friday's jobs report, here is a cool little widget courtesy of the Federal Reserve Bank of Atlanta. The jobs calculator shows you how many jobs need to be created to get the unemployment rate down to a target rate. You can play with the labor force participation rate, population growth rate, etc. If you  take Ben Bernanke at his word that the Fed will end QE when unemployment hits 7%, you can use the calculator to figure out whether we are on pace or not.

Finally, I did an interview on Capital Markets Today where I discussed the recent rise in rates and its implications for housing and the economy. Check it out.