Are Home Prices Rising Too Fast?

In a historical context, home prices typically increase about 3 to 4 percent a year.  But in the years preceding the housing crash, prices in 2002 started soaring 7 percent a year, then 8 percent in 2004, and 12 percent by 2005, CNBC.com reports.

A “new bubble” may be forming, CNBC columnist Diana Olick writes. CoreLogic’s latest housing data shows home prices rose 8 percent in December year-over-year, the largest gain in more than six years. In some places, home prices are up by double digits from a year ago, like Phoenix where prices are up 26 percent year-over-year.

Inventories of for-sale homes are very tight and many are attributing the tight inventories as helping to drive up home prices. Inventories were at their lowest supply since May 2005, according to the National Association of REALTORS®.

“The greatest concern in the market is the inventory situation,” says Lawrence Yun, chief economist for NAR. “Even if we see an increase in the spring and summer, if home sales hold at the [current] level or even a 5- to 6-month supply, price increases are guaranteed. We don’t want to see rapid appreciation in prices faster than income.”