Five Reasons Home Prices Have Been Rising

Rents are rising. Falling mortgage rates and improving job growth didn’t do much for housing last year, in part because buyers didn’t have much confidence or urgency. Rising rents have changed that. Initially,
they spurred more investor purchases of properties that could be rented out. More recently, they’ve given
buyers a reason to get off the fence.

The share of distressed sales, such as foreclosures, are down, and in many Western markets, they are
down sharply over the past year.

Why are distressed sales falling? For one, mortgage delinquencies peaked 2½ years ago. Banks also
slowed down foreclosures as a result of the robosigning scandal, and they’ve stepped up foreclosure
alternatives, notably, by shifting short sales into a higher gear. The share of distressed sales is still high,historically speaking, but because they have fallen from their peak in many markets, prices have stabilized.
States such as California and Arizona that haven’t required banks to process foreclosures by going to court have seen large drops in the volume of outstanding bad debt. Inventories of homes for sale have plunged. Inventories of new homes for sale are at their lowest levels in nearly 50
years as builders sharply cut back construction over the past three years. Inventories of existing homes for sale are near a 10 year low, and down by one third over the past two years. Many homeowners have held back from selling because they owe more than their homes are worth, and
even those with equity don’t want to accept big declines in
prices.
Low inventories have led to more multiple offer situations, as rising demand leads more buyers to chase
after fewer properties. In some markets, foreclosure discounts have disappeared.
This isn’t to say housing is out of the recovery ward. Credit standards are tight. Millions of homeowners are in some stage of foreclosure or default, and millions of others still owe more than their homes are worth. If the economy weakens again, the housing market could relapse.
But if 2012 has taught anything, it’s that those headwinds haven’t been enough to prevent the housing
market from healing.

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