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.
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.
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