Higher Pricing and Borrowing Rates Weigh on Recovery Short-Term, Overall Trajectory Positive

Housing data last week was mixed, but activity in the sector remains largely in growth territory. MBA Mortgage applications were down 0.3% from the prior week, amid home price appreciation and increased borrowing costs. Compared to this time last year, the average 30-year fixed mortgage rate of 4.29% is up nearly 1%. And the Case-Shiller home price index, a measure of home price appreciation in twenty metropolitan areas, showed a 13.3% increase. Higher pricing has persuaded additional consumers to list their homes up for sale, and the resulting increased supply has put pressure on recent price figures. Despite this, the overall growth trend in housing remains strong, supported by $40-$45 billion in monthly mortgage purchases by the Federal Reserve. An improving housing sector boosts the credit-worthiness of corporate borrowers such as Home Depot. The retailer posted strong third quarter results, and management raised sales and earnings forecasts for fiscal year 2013, citing an improving housing sector. SNWAM portfolios are positioned to take advantage of a broad improvement in housing through exposure to mortgage-related securities. We expect the sector to maintain its upward trajectory.