Experts Say a Housing Recovery May Be Closer Than We Think

Experts from JPMorgan Chase and Blackstone Group agree all signs point to a housing recovery.

 According to JPMorgan Chase & Co., last year the number of underwater homeowners declined by 4 million to 7 million. At the peek of the US real estate downturn there were 12 million borrowers that owed more on their mortgage than their home was worth. These underwater borrowers were not able to move or save money by refinancing using the lowest borrowing costs on record.

Blackstone Group’s global head of real estate, Jonathan Gray, suggests the housing market is rebounding faster than anyone thought possible.  To his point, the Federal Reserve is snapping up mortgage bonds at almost record low rates and institutional investors are buying up a diminishing supply of properties for sale, even pushing traditional buyers out of the property frenzy. All this activity is surely a good sign.

In 2012 housing construction increased year over year and experts predict 2013 will follow this path. Housing construction could boost U.S. gross domestic product by 0.4 percentage point, forecasts Bank of America’s senior economist Michelle Meyer.

Meyer also makes another forecast, this one about the consumer psyche. “If prices are rising, homeowners believe that they will once again have an appreciating asset. It’s a very big change in how they think about their wealth and their balance sheets.” Even though a homeowner may still be underwater, the knowledge that their house is appreciating is enough to boost consumer confidence and generate greater credit creation and household wealth.

The decline of 4 million underwater homeowners last year could have been partly caused by the price growth seen in 2012. John Sim, JPMorgan lead Analyst, estimates the number of underwater homeowners may drop by an additional 4 million by the end of 2015. While strengthening prices may have helped lower the number of underwater homeowners, if prices don’t keep rising it is very possible the number of underwater homeowners may swing back up to 10 million.

Blessed are the young, for they shall inherit the national debt.”

– Herbert Hoover –


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