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.