By Ian McKendry

WASHINGTON (MNI) – Bank of America Merrill Lynch said they revised
up their home price forecast for the next two years to about 2.0% growth
from their previous forecast of about a 0.5% rise, citing better
fundamentals and sales of distressed homes being executed more
efficiently.

“Over the last few months, the data have been encouraging and we
now expect a bit more momentum in home prices,” BoAML Strategist Chris
Flanagan and U.S. Economist Michelle Meyer wrote in a research note
Wednesday.

They said they were revising up their forecast for home prices
(using the S&P Case Shiller national composite q4/q4) because of “two
crucial reasons:”

1) “inventory has declined by more than we expected and

2) greater shift toward short sales as a means for liquidating
delinquent loans.”

BoAML said they still think home prices will soften towards the end
of the year and maybe even decline in the fourth quarter of 2012 and the
first quarter of 2013 because they expected economic growth to slow to
about 1.0%.

They also said that while they are upgrading their near-term
forecast, their forecast for prices over the next year is little
changed, with expectations for cumulative home appreciation to be about
44% over the next ten years.

“The reversion back to trend home price growth, as defined by
income, will be gradual,” Flanagan and Meyer wrote.

The August National Association of Home Builders housing market
index, which is a monthly measure of home builder sentiment, published
Wednesday was the most recent sign the housing market is starting to
build a little momentum.

The index improved two points to a reading of 37, its highest level
since February 2007, continuing its surge from April when the index
stood at 24.

“From the builder’s perspective, current sales conditions, sales
prospects for the next six months and traffic of prospective buyers are
all better than they have been in more than five years,” Barry
Rutenberg, chairman of the NAHB said in a statement Friday.

While other analysts have acknowledged the improvement in the
housing market, BoAMLs forecast may be a little rosier than other
forecasters.

In a note published by Deutsche Bank on August 10, analysts said
they are projecting home prices to fall 0.5% from March 2012 to March
2013 but rise to about 1.5% three years from now.

“Serious delinquencies remain high, and the stock of distressed
housing still weighs on the market,” the analysts at Deutsche Bank said,
adding “consequently, the price of the average US home stands to drift
down another 50 bp before finally bottoming next spring.”

Deutsche Bank added that “the rebound in housing looks slow” and
that “the impending inflection in housing should change prospects for
policymakers and investors alike.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$$AG$,M$U$$$,MAUDS$]