BofAML-“Home Prices Bottoming Out” and Bigger Homes from Census

Bank of America Merrill Lynch (BofAML) announced this March that it has revised its forecast to "[home] prices are bottoming now," following a better-than-forecast performance in the last quarter of 2011. Originally, BofAML forecast home prices would drop 8 percent starting in the second quarter of 2011 all the way to the first quarter of 2013. Home prices, however, only declined 3.2 percent through the second half of 2011 and are unlikely to drop another 4 percent to 5 percent.

With its new forecast, BofAML now predicts flat prices between now and 2013, capped by a slight growth in 2014.

The announcement is the latest in a series of accumulating good news for the real estate sector and the agents themselves who have a real estate license or a real estate continuing education—whether that be a Texas real estate MCE or a New York real estate CE—that the housing recovery has started.

"But along with the earlier bottom is a slower recovery, and hence a flatter profile," the BofAML analysts stated in a statement. "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."

BofAML, in fact, predicts cumulative growth of 42 percent in home prices from 2012 through 2020. It also expects the Case-Shiller home price index to dip 2 percent and bottom out at the end of March. 

Meanwhile, the monthly inventory of available homes plunged to 6.4 months in February, from 9.3 months in July 2011, mirroring the decline in distressed sales.

Based on the new Census Bureau data for the first half of 2011, the average size of homes increased along with the number of four+-bedroom homes over 2010 figures.

The data surprised many industry observers since many potential homebuyers have shied away from the market because of high unemployment and a still-anemic economy, according to realtytimes.com (“The Changing Landscape of Single-Family Homes” by Carla Hill). In addition, and significantly, the houses being built are bigger, with more amenities, and more expensive.

At the 2012 National Association of Homebuilders (NAHB) International Builders' Show in Orlando, Florida, NAHB in fact in so many words asked: “How can the average home be getting bigger, more expensive, and have more amenities when the housing market remains weak and the overall economy is yet to see a robust recovery?" 

The reason, said Hill in her article, is today's buyers. They are building bigger because they can afford to do so. They are the ones who can meet the stricter requirements of today’s lenders.

Some important findings reported by the article: 

·         Average size increased to 2,522 square feet, 6 percent greater than the average size in 2010. 

·         Houses with 4 or more bedrooms grew to 42 percent, from 36 percent in 2010. 

·         Average sales price of homes started for-sale increased to $274,400, from $264,900 in 2010.