Its early morning in Miami, and the contrast with last year at ABS East is stark. Last year the Miami weather was dire, as was the mood.
This year it’s sunny and the disposition of conference goers is similar.
There are more than 3,000 attendees, no small feat considering that there is another major mortgage industry conference going on in a colder city far north of Miami. Furthermore, there are 200 new investors here seeking to learn more, meet each other, and find common interests. So, what can we tell them about housing, and the residential mortgage-backed securities market — or rather securitization in general?
Yesterday morning, I was a panelist tasked with discussing the global risks to asset-backed securities. While the speaker ready room wasn’t much larger than a closet, its size was no measure of the degree of expertise in the room. Reed Auerbach, Bingham McCutchen; John Ryding, RDQ Economics; Jay Steiner, Deutsche Bank; Kevin Duignan, Fitch Ratings; Jeff Shafer, Standard & Poor’s Ratings Services and, Tony Hughes, Moody’s Analytics, all squeezed in to discuss important issues like European sovereign debt, the fiscal cliff, and whether the housing recovery domestically is real.
On the topic of the fiscal cliff, we all agreed that the consequences would be dire but that the likelihood of actually going off the cliff is low. The European debt crisis was best described as a situation where the powers that be are doing just enough to avert disaster but not enough to actually cause resolution in the near term.
When it came to the US housing market there was uncommon agreement among panelists that a recovery is occurring. All of the housing statistics are trending in the right direction: shadow inventory and negative equity are declining; REO sales shares are falling and will soon be surpassed by short sale sales share.
Housing demand is increasing, sentiment is improving, and prices are rising. While there is agreement on recovery it is not believed that the housing market has recovered. That will take many years.
Another topic discussed that will likely be a theme throughout the conference is how the RMBS market may return.
Kevin Duignan pointed out that issuance is rising quickly, from two deals last year to possibly eight next year!
Of course this makes the point, in a way that maybe only economists like myself may appreciate that we have a long way to go. The resounding agreement is that RMBS recovery is really just a function of competitive pricing by the GSEs. RMBS investors believe the risk is higher than the guarantee fees the GSEs are charging implies. So RMBS recovery is tied to GSE reform. More on that later as the conference unfolds.
So, the mood here in Miami is positive.
Asset-backed security volumes are again rising, the housing market is recovering, the economy is recovering slowly, even though there are risks to be considered, and people are interested.
Such a different outlook than in recent years past!
Mark Fleming is the chief economist at CoreLogic.
