Shrinking inventory and a shift toward short sales is causing analysts at Bank of America Merrill Lynch to dramatically revise their predictions of how high home prices will travel this year and next.
After saying earlier in the year that national home prices in 2012 will rise just 0.5%, analysts at the bank now feel they will go as high as 2% this year.
Most Americans interviewed by Fannie Mae believe home prices will increase at least 1.4% over the next 12 months, the government-sponsored enterprise said.
The trajectory for the next several years changed little, however. The bank forecasts cumulative appreciation of 44% over the next ten years.
The revisions for 2012 and 2013 are a result of two national trends: inventory declining by more than analysts expected and a shift toward short sales as a means of liquidating delinquent loans.
The slower flow of distressed homes to the market and less non-distressed inventory is resulting in the depressed inventory. And housing turnover has fallen to a historic low, particularly for turnovers not due to foreclosure. A reduction in turnover not only translates to less supply, it also curbs demand.
A shift toward more favorable disposition strategies is also occurring. Over the past several months, the number of short sales has increased. Short sales typically sell at roughly a 15% discount to non-distressed properties while REO sales sell at roughly a 40% discount. The larger discounts for REO sales can be due to factors such as neglect of basic home maintenance as the home goes through the more extensive foreclosure process.