Tuesday, December 11, 2012

Will Rising Home Prices Slow Recovery?

The Housing Market Can’t Win For Losing

Home prices have been rising — the S&P/Case Shiller index showed an annual increase of 3.0 percent from last year; Phoenix, AZ showed a whopping 20 percent annual increase in average home prices.

Some experts have begun to express concern that home prices are being driven by investors snapping up good deals to turn them into rentals, which are offering a good return on investment. Paradoxically, as the investors drive home prices up, the anticipated returns on the investment property shrink — meaning the demand from investors will also drop.

Phoenix, with its 20 percent jump in average home prices, is a perfect example — droves of investors swooped in to take advantage of dramatically depressed prices last year, ultimately creating bidding wars and significantly shrinking inventories and driving the double digit price gains.

Nationally, the housing market recovery has been remarkably uneven — on the one hand there is Phoenix, gaining 20 percent, on the other there is Chicago, where the average home price dropped 1.5 percent from last year.

While the investors may be spurring the housing market recovery now, long term recovery will rest on the re-emergence of first-time home buyers. Home owners with steady incomes and long-term home ownership plans will support and stabilize not only the market, but also the neighborhoods where they buy.

Via CBS News, NBC News, US News, and the Chicago Business Journal.

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