Bank of America and Merrill Lynch has changed its forecast from November when it expected home prices to fall 3.5 percent in 2012. Now, it expects a modest gain of 0.5 percent, which is a good sign for the real estate business.
The firm is still forecasting a slow recovery, projecting home prices to gain 2.8 percent in 2014, which is below its prior estimate of 8.1 percent. The prediction for 2020 remains much the same, with prices recovering by 42 percent.
Inventory dropped sharply in the second half of last year, according to the firm’s research, and expects lower inventory numbers than previously thought. Also, recent trends of higher job creation and record-low mortgage rates, further support the case that housing is undervalued.
Some industry watchers are not optimistic because the market faces continued headwinds. Foreclosures remain a stubborn issue, while lending standards remain strict for many would-be buyers. The rental market poses stiff competition, while many consumers remain too afraid to buy homes.