In December, home prices across the nation increased an average of 8 percent compared to the year before. That might sound like a positive trend for owners took a significant hit during the housing crash, but Diane Olick of CNBC warns it may be too much of a good thing.
Data suggests home prices are mostly being effected by low inventory — supply and demand — instead of employment and income. The artificially inflated value could lead us to the next housing bubble, Olick warns:
“True, consumer confidence in housing is returning. Improving employment is making home buying an option again. Price gains have brought many potential buyers out from underwater on their mortgages, allowing them to move again. Of course they would have to list their homes first, adding to inventory.
“You can see where the dynamics become so complicated that it is easy to have huge housing optimism among the many warnings. Inventories are very low right now, and that is driving prices. Most predict prices will continue to rise through 2013, but prices always lag sales, and these prices are reflecting the sales of last year, the investor sales. If sales do not continue to be strong, and lately they have not been, then prices could easily turn in the hot markets and worsen in the still struggling markets.”
So, while homeowners are understandably satisfied to see their investment regain some of the value it may have lost, it may be more smoke and mirrors if limited supply continues to impact prices.