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Fiserv: Home Prices to Rise 4 Percent for Next Five Years

Thursday, 10 May 2012 07:40 AM

Housing prices should grow an average 3.9 percent for the next five years, according to the Fiserv financial services and technology firm.

Prices will likely begin to climb this summer, quickly in some parts of the country, with investors driving momentum.

As of now, home prices are down 35 percent from their peak in 2006, Fiserv reports, adding today's prices don't adequately reflect the health of the sector.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

"The year-over-year decline in average home prices does not tell the full story of stabilization and recovery. Nearly all non-price metrics — existing home sales, rising home order volumes, increased spending on home improvement, a jump in multi-family construction — indicate that the housing sector hit bottom last year and has started along a path of slow recovery," David Stiff, chief economist at Fiserv, says in a statement.

"The recovery this spring and summer will be driven by investors, who buy primarily in lower-cost markets. In the current environment, focusing on mortgage applications is not a true indicator of sales activity, as investors are less likely to finance home purchases via mortgages," Stiff says.

"We expect that home prices, which generally lag changes in sales activity by nine to 12 months, will stabilize by the end of this summer and then rise at an annualized rate of 3.9 percent over the next five years."

Separately, market researcher CoreLogic reports that U.S. home prices rose 0.6 percent in March from February, the first month-over-month increase since July of last year, USA Today reports.

While housing remains in the doldrums today, other signs point to recovery.

An increasing number of hedge funds, asset managers and investment banks are rolling out vehicles that will invest in the mortgage sector, namely in securities backed by home loans or even in bargain-priced mortgages themselves.

Even if housing delays its recovery, mortgage-backed securities provide higher yields relative to Treasurys thanks to low interest rates.

"There has definitely been a pick-up in investor interest in the asset class and the amount of interest has caused managers to want to come to market with a product because they know there is an appetite for it," says Michael Roth, co-founder of Stark, a $2.4 billion hedge fund, according to Reuters.

"Where does the yield-hungry investor go to whet their appetite? Investors were waiting to see if they could get yield in other places and found it was not happening."

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.



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2012-40-10
Thursday, 10 May 2012 07:40 AM
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