Here’s What Is Really Behind Home Price Gains

This is also a repeat sales index, but it is based on a three-month running average. The National Association of Realtors reported median home prices up nearly 12 percent in March, but being a median, that number relies on the mix of homes sold. It is higher because fewer low-end distressed homes and more higher-priced, non-distressed homes are selling; that skews the median higher.

Those are just a few, but suffice it to say prices are rising based on higher demand and abnormally low supply. Supply, ironically, is low because so far regular home sellers who don’t have to move would rather not sell into a market that is just beginning to recovery.

Also, many homeowners are still underwater on their mortgages, and therefore they would have to pay into their current homes in addition to paying for a new one.

(Read More: Old Ills Still Hit Big Banks)

But why are the price jumps so high? Some say it’s all relative.

“Market observers shouldn’t be fooled by the large headline numbers,” warned Alex Villacorta, director of research and analytics at Clear Capital, a data provider. “Last year was a turning point for the market where the year started with prices at virtually their lowest point and saw a very strong correction through the year. Much of the gains we see right now in the yearly trends are a reflection of the market lows in 2012, rather than a function of recent short-term momentum.”

Villacorta expects these big gains to subside as the market stabilizes and more supply comes up for sale. He sees the recovery of housing itself, not some broader economic resurgence, as housing’s main driver.

“Moderate improvements in the broader economic landscape likely haven’t offered potential homebuyers strong reason to jump back in at the start of the season. We do expect to see more buyers and sellers ready to take action over the next several months as rising prices continue to free up some underwater mortgages,” he offered.

Article source: http://www.cnbc.com/id/100715894

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