May 28 - Home prices are showing double digit gains- but will the gains dampen the enthusiasm of buyers? Bobbi Rebell reports.
Up, up and away? Home prices are racking up double digit gains. The latest S&P Case Shiller index showed U.S. single family home prices had their best annual rise in nearly 7 years in March- jumping more than 10 percent. The march higher driven by tight inventories, super low interest rates and even bidding wars. Craig Lazzara of S&P Dow Jones Indices: SOUNDBITE: CRAIG LAZZARA, SENIOR DIRECTOR, S&P DOW JONES INDICES (ENGLISH) SAYING: "The way that I would think about it is that the presence of bidding wars is a signal of a strengthening market. A year ago, we didn't hear about bidding wars. Two years ago we certainly didn't hear about bidding wars. So, but now that the market is getting stronger we are hearing that there is more competition for vacant homes." But are the prices rising so fast that they could spiral out of control? Zillow Chief Economist Stan Humphries: SOUNDBITE: STAN HUMPHRIES, CHIEF ECONOMIST, ZILLOW (ENGLISH- VIA SKYPE) SAYING: "You've got a lot of investors in there who have been purchasing properties to satisfy the rental market. You've got low mortgage rates. You've got constrained inventory because of negative equity - negative equity in the Phoenix market is still above 40%. That means 4 out of 10 home owners can't sell their house. So that, of course, is a big limiter on how much inventory there is out there on the market right now. So those factors are combining in this witches brew of scarce inventory, high demand, which is spiking prices. " Humphries says the higher prices are primarily being supported by the ultra low interest rates- and when that eventually goes away- the math won't work: SOUNDBITE: STAN HUMPHRIES, CHIEF ECONOMIST, ZILLOW (ENGLISH- VIA SKYPE) SAYING: "We are going to keep thinking homes are incredibly affordable and bidding up prices, so that when rates do return to normal they are going to be even more expensive than they would at current price levels, with higher rates. So yes, I am distinctly worried in some of these markets that we are bidding at prices beyond levels that will be sustainable beyond 3-5 years from now." And as prices do rise, fewer home owners will have negative equity and will finally be able to sell their homes- boosting supply and most likely moderating the price hikes.