Are rapidly rising home prices healthy for the housing market recovery?

November 30, 2012 03:00PM

Though home prices have been on a steady rise these last months, rapid price increases could hurt recovery in the housing market, CNBC reported. The concern lies with investors who are flocking to areas with high numbers of distressed properties and renting them out — though they can get 8 to 12 percent returns, the profits can shrink as house prices rise.

“The worry with investment demand is that the very recovery in prices that it is driving will eventually reduce rental yields and undermine the investment case,” Paul Diggle of Capital Economics told CNBC.

The markets that have the highest price increases are those that had the most losses, such as Phoenix, which the most recent Case Shiller report showed.

CNBC reported an addition concern that has arisen: that home prices are now rising faster than income. The problem here is that potential buyers could be priced out and turned away as they were about to get back into the housing market. [CNBC]Zachary Kussin