The Urban Land Institute released its Real Estate Consensus Forecast Wednesday morning, and overall, the 38 real estate economists and analysts surveyed projected broad improvements for the economy.

With signs of improvement in the housing sector already emerging, participants expect to see housing starts nearly double by 2014 and project home prices will begin to rise in 2013.

The average home price, which has declined somewhere between 1.8 percent and 4.1 percent over each of the past three years, according to FHFA data, is expected to stabilize in 2012, followed by a 2 percent increase in 2013, and a 3.5 percent increase in 2014.

Single-family housing starts are expected to rise from 428,600 starts in 2011 to 500,000 in 2012, and jump to 800,000 in 2014.

The unemployment rate is expected to continue falling, with the rate dropping to 8 percent by the end of 2012, 7.5 percent by the end of 2013, and 6.9 percent by the end of 2014.

By Alexandra Scaggs

Improving economic data and government-policy developments have led Bank of America/Merrill Lynch to call for the long-awaited bottom in housing prices this year.

The firm tweaked its forecast from November, when it expected home prices to fall 3.5% in 2012. Now, it expects a modest gain of 0.5%, a good sign for the sector that continues limping through its worst downturn in generations.

Still, “along with the earlier bottom is a slower recovery,” the firm warns. It expects home prices to gain 2.8% in 2014, solidly below its prior estimate of 8.1%. Its prediction for 2020 remains roughly the same, when it expects beaten-down home prices to have recovered by 42%.

Inventory dropped sharply in the second half of last year, according to the firm’s research. And while BofA/Merrill expects those numbers to pick up because winter’s unseasonable warmth may have already supported home sales, it now expects lower inventory levels than previously thought. Also, recent trends of higher-than-expected job creation and record-low mortgage rates, the firm said, further support the case that housing is undervalued.

The note’s authors—MBS/ABS Strategists Ryan Asato and Chris Flanagan and U.S. Economist Michelle Meyer—wrote that government policies have helped the market as well. While no recent moves have been a panacea for home prices, “they represent a positive step forward.” The firm mentioned a settlement involving state and federal officials and U.S. banks on foreclosure practices and easier refinancing for homeowners as two of these.

However, the firm writes that its outlook could easily change if policies or macroeconomic factors do. If the U.S. economy weakens again in the second half of 2012, housing demand will fall, resulting in continued price declines. And even with this year’s bottom, it will take years for the market to recover in full. “Although the housing market is healing, it is still far from a robust recovery.”

To be sure, some industry watchers aren’t as optimistic because the market faces continued headwinds. Foreclosures remain a stubborn issue, while lending standards remain strict for many would-be buyers. The rental market poses stiff competition, while many consumers remain too afraid to buy homes.

“Despite the optimistic signs from the selling season, we remain cautious,” David Goldberg, a home builder analyst with UBS, wrote in a client note.

–Dawn Wotapka contributed to this post.

Sales of previously owned homes rose in December for the third straight month, bringing the supply of homes listed for sale to the lowest level since 2006 and offering a glimmer of hope that the housing market could be starting to climb out of a profound downturn.

Existing-home sales increased 5% in December from a month earlier, to a seasonally adjusted annual rate of 4.61 million units, the National Association of Realtors said Friday. Lawrence Yun, the Realtors’ chief economist, called the December gain “a good finish to a very tough year.”

CloseMany economists had predicted that 2011 would be the worst year on record for existing home sales, but the year ended with 4.26 million sales, about 1.6% higher than the 4.19 million existing homes sold in 2010. Market-watchers attributed this to a minor surge in sales at year-end, driven by historically low mortgage rates, falling prices, active investor-buyers and increasing consumer confidence.

Still, economists cautioned that it’s too early to assume that the market is recovering. “These were positive numbers, but that doesn’t mean the market is getting better. Lenders have been trying to get rid of distressed homes, and investors been snapping them up,” said Patrick Newport, chief economist at IHS Global Insight. According to the Realtors report, investors purchased 21% of all homes in December, up from 19% in November.

WSJ’s Jon Hilsenrath has details of 2006 Federal Reserve transcripts that reveal the Fed did not forsee the coming housing bust and resulting economic downturn. Photo: REUTERS/Jason Reed

Brendan Conway has the morning’s economic news that will impact markets on Tuesday, including Germany’s confidence report, Jeffries and General Mills earnings reports, and new housing data. AP Photo/Gene J. Puskar

The inventory of homes for sale declined in December to 2.38 million, the equivalent of a 6.2-month supply, assuming the pace of sales remain at December’s level. A six-month supply of homes typically is considered healthy, although NAR’s numbers don’t take into account the “shadow inventory” of homes that are either in foreclosure or on bank balance sheets and not yet listed for sale.

Prices, meanwhile, continue to fall. The median price in December was $164,500, down 2.5% from a year earlier. Prices were down in all regions except the West, where prices rose slightly, compared with a year ago. For all of 2011, the median was $166,100, the lowest since 2002.

“What you really want to see is sales going up, inventories going down, and prices going up, not down,” said David Semmens, an economist with Standard Chartered. “People still feel they can hold off buying a house because the recovery won’t be that aggressive. It’s still very much a buyer’s market.”

That buyer’s market allowed Andrew Gonzales, a 24-year-old police officer in Santa Fe, N.M., to be picky about price when looking for a home for himself and his three-year-old daughter. He closed last month on a $132,000, three-bedroom home in Rio Rancho, a suburb of Albuquerque, after the price was cut twice. Just before closing, the home was appraised for $18,000 higher than the sales price, at $150,000, by a private appraiser.

“I got tired of paying rent, and I’m a single father, so I wanted a home for my daughter,” he said. “I was just waiting for the price to come down.”

Vision Equity, a company that buys foreclosed homes at auctions in Indianapolis, stepped up the volume of its purchases this winter, buying about 45 homes a month in October, November and December, compared with about 30 homes a month last summer.

“There’s a lot of cash investor activity right now,” said Steve Olson, a spokesman for Vision Equity. “The chatter at the courthouse was, there’s going to be a lot more product coming on the market, and the pricing is going to be good for investors. And we prepared our own investors for that.”

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