Morning Report - How accurate are Zillow estimates?

Vital Statistics

	Last	Change	Percent
S&P Futures	1946.6	-3.6	-0.18%
Eurostoxx Index	3307.5	2.2	0.07%
Oil (WTI)	104.8	0.4	0.34%
LIBOR	0.23	0.000	-0.11%
US Dollar Index (DXY)	80.8	0.146	0.18%
10 Year Govt Bond Yield	2.63%	0.03%
Current Coupon Ginnie Mae TBA	106.4	0.0
Current Coupon Fannie Mae TBA	105.5	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.19

Stocks are taking a breather after setting a record yesterday. Bonds and MBS are down.

The NFIB Small Business Optimism Report hit its highest level since September 2007, but is still below neutrality, which is considered 100 on the index. Small business increased headcount by .11 workers in May, which extends the streak to 8 months. Still on average companies are not reporting increased sales, which will drive economic growth. Earnings trends are still negative as well. So overall, this report shows small business is approaching normalcy, yet the S&P 500 is at record highs. What gives? Well the S&P 500 has a lot of international exposure, which is where the growth is. Second companies with big market caps can get extremely favorable financing right now, while the smaller businesses still have a tougher time of it. And finally, all that central bank stimulus has to go somewhere, and at the moment that place is U.S. large cap stocks.

The latest Fannie Mae Monthly National Housing Survey is out, and it shows that optimism about the housing market is still close to the highest it has been post-crisis. Respondents thing house prices will increase 2.9% over the next 12 months (FWIW NAR is mid / high single digits). The number of people expecting mortgage rates to increase over the next 12 months has fallen (unsurprising given interest rates have fallen generally) and more people think it is a good time to buy than to sell. People's expectations of their personal financial situation 12 months out seem to be deteriorating, a worrisome sign. Could be just due to the lousy Q1 GDP, but it bears watching - consumer sentiment is key to the real estate industry, and in fact KB Home CEO Jeff Metzger once said on a conference call that sentiment matters more than interest rates. 

Ever noticed that the Zillow Z-Estimates rarely line up with where houses actually trade? It turns out that the Z-Estimates are within 5% of the actual value of the home just about half the time. Two years ago, Z-Estimates were too high, now they are too low. If you have a buyer who is stuck on paying no more than the Z-Estimate for a home, show them this article - the Z-Estimate is probably not realistic. Here is Zillow's response to the article.

The Obama administration expanded eligibility for the student loan cap, where student loan repayments are capped at 10% of income. Not sure how holders of student loan debt will be treated, but I have been hearing anecdotal evidence that some hedge funds are setting up the Paulson trade in student loan ABS. Student loan debt is undoubtedly one of the biggest issues with the first time homebuyer, and until the first time homebuyer returns, the housing market (and the economy in general) will continue to punch below its weight. Of course this sort of thing simply amounts to a subsidy for higher education, and given that demand for higher education is relatively inelastic, the beneficiaries will ultimately be the universities as they can (and will) raise tuition to capture the subsidy.