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Home-price forecasts for 2013 are on the rise

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Home-price forecasts for 2013 are on the rise

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Home-price forecasts for 2013 are on the rise


J.P. Morgan Chase   & Co. expects U.S. home prices to rise 3.4% in its base-case estimate and up to 9.7% in its most bullish scenario of economic growth.   Standard & Poor’s , which rates private-issue mortgage bonds, on Friday said it expects a 5% rise in 2013

The J.P. Morgan analysts boosted their base-case estimate from 1.5% after a convincing rise in the “net demand” for housing this year has surpassed 2 million homes for the first time since 2006, said   John Sim , a strategist at the investment bank. Net demand is the pace of existing home sales minus the inventory of homes available for sale

“Net demand has picked up a lot in 2012,” said Mr. Sim. “Once you get north of the 2 million territory, you are in the positive growth area unless you get a lot of distressed inventory, which this year hit a low point” since at least 2008, he added. J.P. Morgan predicts that net demand to rise from 2.7 million next year from 2.3 million this year

An expected increase in home prices in 2012 triggered a run into some of the riskiest real estate assets, such as subprime mortgage-backed securities from the real estate boom, and analysts including Mr. Sim expect that trend to continue. Rising home prices and the quest for yield has also given a tailwind to new mortgage bond issuance that has been mired in the fallout of the housing crisis and regulatory uncertainty for the past four years
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U.S. home prices nationwide increased on a year-over-year basis by 6.3% in October, the biggest increase since June 2006, according to   CoreLogic . Investors zoning in on the increases bought subprime mortgage bonds, which have posted returns of more than 40% since December

Home price increases could exceed J.P. Morgan’s base forecast if investors seeking yield push deeper into real estate, according to Mr. Sim’s home price report

That may already be happening, considering recent comments by   Luke Scolastico , a vice president at   Credit Suisse , one of two issuers of mortgage bonds without government backing since the financial crisis. Credit Suisse is increasing its purchases of jumbo loans to meet demand for securities it sees from investors, he said on an   American Securitization Forum   panel this week

“We’re buying loans, every day…and (on the month,) more than the month before,” Mr. Scolastico said. Part of the reason is because of home price appreciation, but also because of the “technical demand” for relatively higher yielding assets as Federal Reserve policies depress interest rates, he said

New mortgage bond sales from other issuers, including investment banks, could boost issuance of private label bonds this year as high as $30 billion, Mr. Sim said. That’s up from almost $5 billion this year but paltry compared with annual volume above $1 trillion generated as the housing bubble neared its breaking point in 2006

Mortgage bonds issued by   Fannie Mae ,   Freddie Mac   and   Ginnie Mae   still fund more than 90% of new home loans. Bank portfolios and other private lending make up the rest
Considering risks, J.P. Morgan analysts conceded that the economy is “gloomy” and tight lending standards can stop a bullish homebuyer from proceeding with a purchase. On the supply side, the “shadow inventory” of more than four million homes near or stuck in foreclosure still looms, though that is dropping, the analysts said.

What’s more, just the uncertainty over whether politicians will be able to steer clear of the “fiscal cliff,” the scheduled tax increases and spending cuts next month, may hurt investor confidence, the J.P. Morgan analysts said.

If taxes rise, reduced income for the potential homebuyers will damp housing demand, they added

But the expectations for higher home prices are still widespread. Nearly three-quarters of investors polled by J.P. Morgan expect home prices to rise 5% in 2013

Read the full article: http://blogs.wsj.com/economics/2012/12/14/home-prices-could-jump-9-7-in-2013-j-p-morgan-says/?goback=.gde_662007_member_198719613