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Rosy Housing Outlook of Bank of America

Posted by Sara | Blogging | Friday 20 May 2011 3:26 am
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Rosy Housing Outlook of Bank of AmericaBank of America is hoping a recovery in home prices this year and would allow it for avoiding new losses on mortgage loans.

However, the outlook clashes with the views of some independent analysts and its own economist.

From news.yahoo.com:

While Bank of America does not disclose its home price forecast, spokesman Jerry Dubrowski says it is “close” to the average 1.4 percent decline predicted by 111 economists surveyed by research firm MacroMarkets. Neil Cotty, the bank’s chief accounting officer, said on an Apr. 15 conference call with analysts that home prices may begin a “gradual improvement over the second half.”

Cotty’s view is more optimistic than the one held by Michelle Meyer, the bank’s senior U.S. economist, who predicts the market won’t hit bottom until 2012. Meyer, whose arrival in August from Barclays Capital (NYSE:BCS – News) was accompanied by a news release praising her housing expertise, sees foreclosure sales as a drag in coming months. “There’s a long and painful path before the housing market looks normal,” she said in an Apr. 20 interview on Bloomberg Television. “Our view is that we’ll see a 5 percent drop in national home prices this year; it could be larger. The increased share of distressed sales will continue to exert downward pressure on home prices.”

Each quarter, banks set aside money to cover mortgage losses, basing the amount on their outlook for the housing market and other factors. That money is deducted from the bank’s earnings, so adding less to reserves increases reported profits. “If you put on a pair of rose-colored glasses with respect to the housing market, then you can defer the recognition of provision costs and buy time to earn your way out of the hole,” says Tony Plath, a professor of finance at the University of North Carolina in Charlotte who follows Bank of America. “It’s wrong, but that’s what’s going on.”

“Reasonable people will come to different views when looking at economic forecasts,” says BofA’s Dubrowski. “I don’t think we’re overly optimistic in our expectations for housing prices.”

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