Given the importance of housing to MBS credit and prepayment performance, MBS investors have always kept one eye on trends in national and regional real estate markets. As recent data suggest that housing is finally rebounding from the severe slump of the last half-decade, investors and originators need to contemplate how a sustained housing recovery might impact the different segments of the MBS markets.
There are a variety of indicators pointing to a general recovery in home prices and residential real estate activity. The National Association of Home Builders Index, a crude yet telling number, is at its highest level since May 2006; both new and existing home sales have also trended higher, suggesting an uptick in activity. Home prices have also shown broad-based strength. Illustrating the breadth of the recovery, 124 of the 154 metro areas reporting median home prices to the National Association of Realtors (NAR) experienced year-to-year price increases in the third quarter of 2012. A number of prominent economists have called for housing to lead the economy in 2013, although the outcome of the "fiscal cliff" negotiations will certainly impact housing and real estate.