Investment house Morgan Stanley [stock MS][/stock] is pretty confident about the housing recovery.

In fact, even with mortgage servicing regulation coming and decisions on qualified mortgages forthcoming, Morgan Stanley believes the housing market will not only withstand this, but come out on top.

Here is the bold prediction:

"We expect to see 2012 end with an increase of 7-9% for the year in aggregate home prices after considering seasonality effects for the remainder of the year, with the possibility of a 10-12% increase on the bullish side and a 4-6% increase as the bear case," write analysts in the latest Housing Markets Insight report. " We view the bear case outcome to be relatively less likely."

There are some seemingly counterintuitive reasons for this.

Continued tightened mortgage credit is keeping demand high. The big players, Fannie Mae and Freddie Mac are slowly reducing market share. A lack of a private label securitization market also spells a large lack of financing for potential borrowers.

So, they say that pressure to fund these potential homeowners will eventually need to be relieved, promising a strong housing recovery.

And let's not forget the Fed.

"Recent actions by the Federal Reserve, the commitment to keep interest rates lower for longer as well as the launch of an open-ended QE3, convince us that this low mortgage rate environment and the demand response for housing are likely to prevail for an extended period – well into the future," they conclude

jgaffney@houingwire.com