Foreclosure starts dropped 28 percent in November from a year earlier, data provider Lender Processing Services Inc. wrote in a report this week.

As real estate prices rise further, more homeowners will emerge from negative equity and may decide to sell, adding to supply.

Still, increasing prices will have a more gradual effect on the housing market, said Karen Weaver, head of market strategy and research at investment firm Seer Capital Management LP in New York. “Home prices are not rocketing up,” said Weaver. “But all the trends are in place. You have an improvement in the negative equity situation and you have a reduction in the amount of people in the default bucket.”

Housing Estimates

Home values climbed by more than $1.3 trillion to $23.7 trillion since the end of 2011, according to Zillow, and prices will rise by 3.3 percent after an estimated 4.5 percent jump last year, based on estimates of 15 economists and housing analysts surveyed by Bloomberg. Sales of existing homes will increase about 7.2 percent in 2013 to 4.98 million, the highest since 2007.

Lennar Corp., the largest U.S. homebuilder by stock-market value, today reported fiscal fourth-quarter earnings that beat analysts’ estimates as revenue increased 42 percent to $1.35 billion.   Increasing prices compounded with Fed efforts to keep mortgage rates low could also widen the population of borrowers eligible to refinance and have implications for bond investors.

Higher levels of refinancing would be a boon for securities without government backing such as subprime bonds and option adjustable-rate mortgages issued during the housing boom that trade at discounts to par. Faster prepayments could hurt holders of government-backed mortgage bonds, whose prices average almost 108 cents on the dollar, according to Bank of America data.

Worst Recession

The improving housing market has already helped the broader economy heal after the crash triggered the worst recession since the Great Depression. The unemployment rate has dropped to 7.8 percent, the lowest level since January 2009 and Fed officials in December projected economic growth in a range of 2 percent to 3.2 percent in 2013. Consumer spending, which accounts for about 70 percent of the economy, is also showing signs of improvement. Retail sales rose more than projected last month, according to Commerce Department figures today in Washington.

“For most middle class households, homes are by far their biggest asset,” Weaver said. “So once the housing market starts to recover it helps consumer spending, it helps the whole economy.”

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