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Housing Slump Not Over, Mortgage-Bond Investors Say in Survey

Photographer: David Paul Morris/Bloomberg

Bella Casa Home Staging worker Manuel Sanchez removes a box from a condo for sale in San Francisco. Close

Bella Casa Home Staging worker Manuel Sanchez removes a box from a condo for sale in San Francisco.

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Photographer: David Paul Morris/Bloomberg

Bella Casa Home Staging worker Manuel Sanchez removes a box from a condo for sale in San Francisco.

Mortgage-bond investors aren’t convinced that the U.S. housing bust is over, according to a survey by JPMorgan Chase & Co.

Only 34 percent of respondents in a poll last week agreed that “home prices have bottomed nationally,” with 11 percent expecting values to fall an additional 5 percent or more, according to a July 27 report by the bank’s analysts. A total of 56 percent said prices will decline less than 5 percent.

A rally in the $1 trillion market for home-loan securities without government backing has been accelerating as investors seek higher returns amid benchmark interest rates that reached record lows this month. Bond buyers’ relative pessimism on the real-estate market adds to signs further gains may be possible, according to JPMorgan analysts led by John Sim in New York

“Our survey indicates that home price stabilization may not yet be priced in,” the analysts wrote in the report.

The investors’ views contrast with comments by Warren Buffett, Berkshire Hathaway Inc.’s billionaire chairman, who told CNBC on July 12 that “we’re seeing a pickup, and it’s noticeable” in residential housing. Goldman Sachs Group Inc. analysts said July 23 that the market has started a “strong” recovery that will benefit builders, while Bank of America Corp. economist Michelle Meyer said “we think home prices have indeed bottomed” in a July 25 interview with Bloomberg Television.

Home Values

Values in 20 large U.S. metropolitan areas rose 1.3 percent in April from the previous month, after a 35 percent plunge from a July 2006 peak, according to S&P/Case-Shiller index data. May figures will be released tomorrow. Prices nationwide rose 1.8 percent in May, the third straight monthly gain, according to real-estate data firm CoreLogic Inc. in Santa Ana, California.

Still, sales of previously owned homes unexpectedly fell to an eight-month low in June, slumping 5.4 percent to a 4.37 million annual rate, the National Association of Realtors said July 19. The group’s index of pending sales unexpectedly decreased 1.4 percent after a 5.4 percent gain in May that was less than initially reported, figures released July 26 showed.

Slower job growth that’s holding down confidence and strict lending standards are restraining housing even with cheaper properties and mortgage rates at all-time lows. While down from a peak of 8.79 million units in 2010, so-called shadow inventory remains at 5.65 million, Morgan Stanley said July 26. The figure represents loans likely to default, in foreclosure or already turned into seized homes, and poised to add to distressed sales.

‘Yield Grab’

Asset managers including D.E. Shaw & Co., Cerberus Capital Management LP, Canyon Partners LLC and Goldman Sachs started funds during the past year that target home-loan debt without government backing, spurred by its 2011 collapse, bullishness on housing or predictions of forced selling by European banks.

Subprime-mortgage securities from 2005 through 2007, the years that produced the most defaulted loans, have rallied more than 25 percent this year, according to Barclays Plc index data. Losses averaged 5.5 percent last year, after some bonds slumped as much as 30 percent from early 2011 peaks.

“Investors have been taking profits after the rally pushed returns higher than 15 percent on many distressed assets,” the JPMorgan analysts wrote. “Still, the yield grab continues and we expect further tightening from here as positive economic news and headlines in Europe buoy risky assets.”

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net;

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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