TEXT-Fitch cautiously optimistic on home prices; real prices remain overvalued

Fri Jan 4, 2013 9:04am EST

Jan 04 - Fitch Ratings believes that the recent home price growth is being driven more by technical factors than fundamentals. For this reason, the agency's sustainable price projection is more somber than that observed by current market trends. However, Fitch believes that the price growth trends in certain locations are indeed supported by fundamentals and the agency's view is more positive.

Fitch's sustainable market value decline (sMVD) forecast for the U.S. has increased to approximately 10.0% this quarter, which reflects the agency's view that real prices remain overvalued. From a regional perspective, Fitch's projections for home price movement trajectories widely vary with many of the hardest hit markets at or below sustainable values and posting impressive recoveries.

While in real terms Fitch projects that national prices are 10% overvalued, in an expected scenario, the agency believes that nominal prices are roughly 2% above sustainable levels nationally as inflation and a stronger economic recovery push prices higher.

Fitch's latest report, 'U.S. RMBS 2Q2012 Sustainable Home Price Projection, is available at 'www.fitchratings.com' or by clicking on the above link.

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