Morgan Stanley analysts predict pop in May home sales

Analysts at Morgan Stanley may not be raging bulls on housing but they do expect national home sales figures to beat expectations.

Analysts from the firm’s U.S. Economics team said in a report that home sales should increase 2% in May over April, giving stocks a boost as the consensus forecast for sales is predicting a 1.1% decline.

“We recommend going long S&P 500 and short U.S. Treasuries going into the release,” analysts Ajit Agrawal and Spencer Hill wrote.

Last week, housing economist Tom Lawler, on the popular Calculated Risk blog, predicted a 0.9% month-over-month gain.

In a separate Morgan Stanley report, also released Wednesday, analysts Vishwanath Tirupattur, James Egan and Jose Cambronero said that “distressed” home prices have bottomed. “Our outlook for distressed home prices is cautiously optimistic, driven primarily by investor demand motivated by the rental market,” they wrote.

But they forecasted further aggregate home price declines because of the still-tepid economy and lack of available mortgage credit.

“While sustained employment increases are required for a robust recovery in U.S. housing, we also think that a reformed mortgage finance system is a necessary condition for a robust recovery in U.S. housing,” they wrote.

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