JPMorgan Chase expects home prices to rise 7% in 2013 as investors continue to take interest in nonperforming loans and distressed properties. The forecast for 2013 is more optimistic than initially expected.

Although most investors still believe home prices will increase by less than 5%, some investors expect home price growth to increase as much as 15%, according to JPMorgan’s (JPM) February investor survey.

“As we pointed out in our 2013 outlook, the distressed sale discount should continue to decline. Indeed, the quantitative easing program has not done much for mortgage rates, but the resulting reach for yield is now firmly grounded in the housing market,” the company said. 

Additionally, the home price forecast is higher for the next three years, with 3.9% growth expected in 2014 and a 3.2% increase anticipated in 2015, representing roughly 14% in cumulative growth.

The projected growth rates are still relatively small for 2014 and 2015 because JPMorgan believes income growth and lending standards will limit price gains.

Meanwhile, the nation’s shadow inventory is expected to fall to 3 million by the end of this year.

Also by the end of 2013, JPMorgan expects one-in-ten borrowers to be underwater, which is a “substantial reversal” from one-in-four in 2011. 

In terms of liquidations, 1.1 million loans were liquidated in 2012, compared to 1.5 million in 2011, the report noted.

“We think this should fall to about one million in 2013 and then slowly taper off to a steady state annual pace of around 200,000 loans by the end of the decade as we return to a pre-crisis environment,” JPMorgan analysts said.

JPMorgan also stated that while inventory is winding down quickly, a historically large foreclosure inventory should continue to exist through 2017, reflecting the growing share of delinquent loans in judicial states since timelines are considerably longer. 

Furthermore, housing and economic indicators are also showing resilience despite recent fiscal headwinds.

For instance, the months’ supply for February existing sales were down to the lowest level since March 2005, JPMorgan explained.

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