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JPMorgan Sees Home Prices Up 14% as BofA Touts Party

*from www.bloomberg.com, Mar. 15, 2013 (To view original article click here.)

Take Away #1: Bernanke’s efforts to revive housing are making real estate bulls even more bullish as the two biggest U.S. banks predict an accelerating rebound.

Key Facts and Figures:

  • JPMorgan Chase & Co. more than doubled its forecast for U.S. home price gains in 2013 to 7% this week.
  • The bank also predicted a more than 14% increase through 2015.
  • Bank of America said last week property values will jump 8% this year, up from a prior estimate of 4.7% in a report titled, “Someone say house party?”

Take Away #2: A rush to acquire properties as the Fed pushes down borrowing costs is strengthening the economy and sustaining a rally in homebuilder shares.

Key Facts and Figures:

  • Homebuyers and investors are rushing to acquire a dwindling supply of properties.
  • The Federal Reserve continues to push down borrowing costs by buying mortgage bonds.
  • “We still think we are in the early innings of a prolonged recovery in housing and the economy,” said Samantha McLemore.
  • Home prices rose 6.8% in December from the year earlier, the biggest gain since 2006.
  • The measure is still 29% below the peak that year after soaring homeowner defaults helped trigger the global financial crisis.

Take Away #3: Growth last year was triggered by a lack of housing stock coupled with rising demand from institutional investors.

Key Facts and Figures:

  • Blackstone Group LP has purchased 20,000 single-family homes to rent.
  • The number of homes for sale fell 5% to 1.74 million in January form the year-earlier period.
  • JPMorgan estimates home prices will increase 3.9% next year and 3.2% in 2015.
  • New home sales in January saw the highest increase in 20 years.

Take Away #4: In addition to tight inventory, low interest rates are fueling accelerated home price gains.

Key Facts and Figures:

  • The average rate for a 30-year loan ended the week yesterday at 3.63%, a six-month high.
  • Stronger than expected employment growth drove up yields for the government securities that guide home loans.
  • While that’s up from the record low of 3.31% in November, it’s down from 6.8% in July of 2006.

Take Away #5: “We believe a positive feedback loop has begun”, say analysts from Bank of America Corp.

Key Facts and Figures:

  • The feedback loop is when the rise in home prices fuels expectations of further appreciation and easing credit conditions, which in turn stimulates homebuying.
  • Gains will moderate to 6.5% in 2014 – revised from a previous estimate of a 7.7% increase – and 3.7% in 2015, the analysts wrote.

Take Away #6: The shrinking supply of foreclosed homes has helped to propel prices.

Key Facts and Figures:

  • In 2012, 1.3 million liquidations occurred, about 30% less than the bank expected.
  • Foreclosures plunged 29% last month form a year earlier to the lowest level since 2007 amid increased efforts by state lawmakers and courts to delay property seizures.
  • JPMorgan estimates that by the end of the year, 10% of borrowers will owe more than their home is worth, compared with 25% two years ago.

Take Away #7: Homebuilders are also benefitting from shrinking supply of existing property on the market.

Key Facts and Figures:

  • Homebuilders have rallied 64% in the past 12 months through yesterday.
  • An 11-compnay gauge rose 0.6% today at 9:49 a.m. in New York and has advanced 14% this year.
  • KB Home (KBH) has surged 31% since December.
  • D.R. Horton Inc. has gained 25%.

Take Away #8: If home price performance this year and the ensuing years is anything close to these predictions, there could be a further rally in non-agency residential mortgage-backed securities.

Key Facts and Figures:

  • So-called non-agency debt, which includes bonds backed by subprime mortgages, returned an average of about 21% last year.
  • Bryan Whalen of TCW Group Inc. said, “In a more subdued recovery we thought near-term total rates could be in the mid-teens.”
  • “If we see higher numbers we could see total rates of return north of 21%”, Whalen said.
  • Homebuilders, which have rallied 64% in the past 12 months through yesterday, are also benefitting from shrinking supply.

Take Away #9: The central bank is waiting for the labor market to “substantially” improve before ending its monthly bond buying.

Key Facts and Figures:

  • The Federal Open market Committee has said the central bank is waiting for the labor market to “substantially” improve before ending its buying of $85 billion in bonds each month.
  • The number of people filing claims for jobless benefits over the past four weeks has dropped to the lowest level since March 2008.
  • The February jobs report showed that hiring in construction jumped by the most in almost six years.

*To view original article from www.bloomberg.com click here.

Filed in: Economy, Latest

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