Mortgage rates are about a full percentage point higher today than they were at the beginning of March. The average rate on the 30-year fixed hit 4.80 percent by the middle of last week, according to the Mortgage Bankers Association. That is the highest since April 2011.

Rates have been trending higher on expectations that the Federal Reserve will begin to taper its investments in mortgage-backed securities.

Home prices are also trending higher in part due to the fact that there are fewer distressed properties for sale. Excluding distressed sales, prices were up 11.4 percent year over year. Distressed properties have seen big price jumps in the past year, as investors fight to get the remaining bargains.

Markets hit hardest by the housing crash have seen some of the biggest price gains: Nevada home prices were up 27 percent annually in July, California up 23 percent and Arizona up 17 percent. Completed foreclosures nationally were down 25 percent in July from a year ago, according to CoreLogic.

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Prices are also getting a boost from the sheer lack of properties for sale. Inventories are way down in local markets across the nation, and home builders are not ramping up production fast enough to meet new demand.

While the inventory situation is not expected to ease very much over the next year, home prices are expected to weaken slightly, as higher rates and weak income growth put a cap on just how high prices can go.

Article source: http://www.cnbc.com/id/101004096

“Market prices have to go higher to provide incentives for more new houses to be built,” said Aaron Edelheit, CEO of Atlanta-based The American Home, a company that invests in distressed properties and turns them into rentals. “I believe we are on the cusp of a massive housing shortage in many parts of the country due to the historic lack of residential investment in the last five years. This summer, I expect the housing market to be ‘blue flame’ hot.”

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Prices today are rising fast because supplies of homes for sale are so low. Both new and existing homes are running near four month supplies.

For new homes, builders just aren’t able to start fast enough, due to labor and land restraints.

For existing homes, there are fewer distressed properties for sale, a segment that has driven the market into recovery, and organic homeowners are either unwilling to list their homes for fear of selling at the bottom, or unable to list because they are still underwater on their mortgages.

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“Taking new and existing homes together, the relationship between the months’ supply of unsold homes and house prices points to an acceleration in the pace of house prices gains in the year ahead,” said Paul Diggle of Capital Economics.

Article source: http://www.cnbc.com/id/100496564