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Housing Market Just Hit Bottom: Bank of America Merrill

NEW YORK (TheStreet) -- Housing prices are bottoming now, though the recovery "will not begin in earnest until 2014," according to a Bank of America Merrill Lynch report released Thursday.

Merrill Lynch analysts had forecast in a November report that housing prices would drop another 8% from the second quarter of 2011 through the first quarter of 2013. However, the monthly supply of houses has declined and the number of "distressed" sales have lower than forecast.

"We expect moderate increases in these parameters over the next two years, but due to ongoing foreclosure prevention efforts, we think the levels will be lower than we previously believed," the report states.

Despite the earlier bottom, Merrill analysts are hardly more bullish on the recovery.

"Along with the earlier bottom is a slower recovery, and hence a flatter profile. We still believe prices should accelerate in the later years once the majority of the foreclosure inventory is absorbed, allowing prices to snap back to the trend in income. From 2012 through 2020, we look for cumulative price growth of 42%, which is comparable to our prior forecast," the report states.

Merrill's report touches on several policy initiatives aimed at restarting the housing engine, including the settlement between 49 state attorneys general and the five largest mortgage servicers: JPMorgan Chase (JPM)Bank of America (BAC)Wells Fargo (WFC)Citigroup (C) and Ally Financial, but argues the initiatives do not offer a "silver bullet," to turn the market around.

Among other things, a housing recovery would bode well for shares those same big banks, which have rallied strongly in 2012. Leading the way has been Bank of America itself, which has the greatest exposure to the housing bust and its fallout.

Bank of America shares are up nearly 77% year to date after a dismal 2011, but were lower in premarket trading Thursday.

The bottom call by Merrill's analysts echoes one by Barron's, which argued on its front page Saturday that the housing price decline is in its final throes.

Citing data from CoreLogic, the magazine attaches great significance to the fact that nondistressed-sales prices rose 0.2% month over month in December 2011 and 0.7% in January 2012.

-- Written by Dan Freed in New York.

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