Housing Market Benefiting from ‘Positive Feedback Loop’

The housing market is gaining momentum, according to analysts at Bank of America Merrill Lynch, and house prices will be up 8% by the end of this year.

In 2012, the national S&P Case-Shiller home price index gained 7.3%.

“We believe a positive feedback loop has begun, where the rise in prices fuels expectations of further appreciation and easing credit conditions, which in turn stimulates home buying,” the analysts say in a report released Friday.

They noted that increasing demand for housing and the low supply of homes for sale will also keep prices moving up.

Meanwhile, shadow inventory will remain in check due to loan modifications and investor demand for REO properties. Short sales will be a factor, too.

“As home prices continue to increase, and supply remains muted, we expect that interest in these properties will remain high and banks will be able to continue utilizing short sales as a way to clear distressed inventory more efficiently,” the B of A/ML analysts say. The title of their report is “Someone Say House Party?”