Things look better on the home front now compared to late last year, notes Bank of America Merrill Lynch ($9.82 0%), which revised its home price forecast Thursday to say “prices are bottoming now.”
In November, BofA Merrill Lynch analysts forecast home prices would fall another 8% from the second quarter of 2011 through the first quarter of 2013. But home prices only dipped 3.2% during the second half of 2011, implying they’d need to decline another 4% to 5% to reach the original estimate.
BofAML doesn’t think a drop that big is likely.
In fact, it now predicts roughly flat prices this year and next with modest growth in 2014, according to a forecast update from strategists Chris Flanagan and Ryan Asato and economist Michelle Meyer.
“But along with the earlier bottom is a slower recovery, and hence a flatter profile,” the analysts said. “We still believe prices should accelerate in the later years once the majority of the foreclosure inventory is absorbed, allowing prices to snap back to the trend in income.”
In the chart below, the first column of percentages represents the new forecast and the column to the far right shows the old forecast:
Analysts said a protracted bottom, which will last about two years, is due in part to policy initiatives such as the administration’s Home Affordable Modification Program, aimed a preventing foreclosures, and principal reductions that will be granted through the national attorneys general mortgage servicing settlement. The pilot program to rent out government-owned REO, for which BofAML has previously expressed support, and changes to the Home Affordable Refinance program also will have an impact.
“We do not believe any of these programs represents the ‘silver bullet’ for housing. However, taken together, they represent a positive step forward on the policy front,” the report said, noting that the AG settlement allows servers to move forward to more effectively service loans, foreclose when appropriate or originate new loans.
From 2012 through 2020 BofAML predicts cumulative growth of 42% in home prices — 4% on an annualized basis — comparable to its prior forecast.
BofAML expects the widely watched Case-Shiller home price index to fall 2% this quarter, reaching bottom at the end of March, with seasonal gains expected over the spring and summer and price declines over the winter. It cautioned against overacting to the choppy pattern.
The monthly inventory of available homes tumbled lower recently, reaching 6.4 months in February, down from 9.3 months in July 2011. In addition, the share of distressed sales also is on the decline. The revised report noted levels on both variables will be lower going forward than BofAML previously believed, although they expect them to modestly tick upward over the next two years.
More positive news has been released regarding the state of the residential real estate market in the Capital Region of New York State. After a long Five year recession in housing, there are signs that seem to indicate that we are rounding the corner of the bottom of the market. Buoyed by a strong economic development climate in Saratoga County and the the Capital Region with an emphasis on technology and education, recent home sales and pending transaction numbers actually show growth.
The Capital Region should lead the charge of recovery throughout upstate NY, as consumers become more confident in the purchase of vacation residences in the Adirondacks and we are hopeful that economic development will sprawl to the other central and western NY metropolitan markets as well.
Here is a repost of a recent article in the Business Review written by Michael DeMasi.
Albany-area home sales and prices up in April
The Business Review by Michael DeMasi, Reporter
Date: Tuesday, May 22, 2012, 6:50am EDT
Completed sales of homes increased 24 percent in April in the Albany, New York, area, while pending sales rose 16 percent, according to a preliminary report released today.
The median sale price increased 4 percent, to $187,500, and the average price rose 2 percent, to $209,057, according to the Greater Capital Association of Realtors.
The figures, which are subject to change, point to continued improvement in the residential real estate market after a five-year slump.
“These numbers are strong indicators that a market which once favored buyers so heavily is starting to rebalance itself,” GCAR President Nina Amadon said.
The figures reflect sales of new and existing single-family homes and condos through the Capital Region Multiple Listing Service, which encompasses 11 counties. Most activity is in the four largest counties: Albany, Schenectady, Rensselaer and Saratoga.
The vast majority of sales are of existing homes.
Completed sales are up 17 percent, to 2,072 units, year-to-date, and pending sales increased 26 percent, to 2,791 units year-to-date. Pending sales are a sign of future activity since it takes about two months for a contract to proceed to a closing.
Sales in April for the four largest counties were as follows:
Albany: pending sales up 1 percent, completed sales up 31 percent; median price up 3 percent, to $195,000
Rensselaer: pending sales down 10 percent, completed sales up 43 percent, median price up 8 percent, to $186,300
Saratoga: pending sales up 39 percent, completed sales up 31 percent, median price unchanged, $240,000
Schenectady: pending sales up 14 percent, completed sales up 4 percent, median price up 9 percent, $159,000
The median is the point at which half the prices were higher and half lower. It is considered a better gauge of the market than the average, which can fluctuate widely based on one or two sales.