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Monthly Gains Just a Silver Lining for Home Prices: RadarLogic

While other experts and analysts have concluded home prices are on the rise and the recovery is under way, ""Radar Logic"":http://www.radarlogic.com/ released a report challenging the upbeat viewpoint.

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""We believe that the oversupply of homes relative to demand will prevent sustained home price gains for some time,"" the analytics firm stated.

The argument made by Radar Logic is that as buyers absorb the supply of homes for sale in certain markets and prices start to stabilize as a result, home owners who have been waiting on the sidelines to sell will do so once prices start to improve. This will increase supply once again, and home prices will stop appreciating as supply exceeds demand.

According to the RPX Composite price index, which tracks prices in 25 metropolitan areas, home values decreased by 0.8 percent year-over-year in April 2012 and increased by 2.7 percent from the month before in March 2012.

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From April 2010 to April 2011, home prices made an even steeper drop at 5.2 percent, which shows prices have improved year-over-year despite the yearly decline in April 2012.

The report also noted that spring price appreciation has been strong in the West over the years, especially in Los Angeles, Phoenix, San Jose, and San Francisco.

Quinn Eddins, director of research at Radar Logic and author of the report, warns other temporary factors are helping with the gains.

""Housing bulls point to recent strength in home price indices and say that housing has bottomed and a recovery is either underway or on the horizon. But much of the recent strength in housing prices is the result of investor demand and mild winter weather, and the effects of both are likely to be temporary.

The report explained that investor demand will eventually wane as returns for rent decreases. Also, warm weather this winter allowed for a head start into the buying season, so the early increase in demand will come at the expense of a slower buying season later unless new demand is created.

In addition to home prices, Eddins also takes a skeptical view of claims that low prices and low interest rates are making way for recovery.

Instead, he agrees with a recent article by Andrew Davidson and Alex Levin titled ""Measuring Housing Affordability and Home Price equililbrium; Revisiting the Housing Bubble & Bust and HPI Modeling,"" which expresses the view that when down payments and the availability of affordable mortgage products are taken into account, housing is not nearly as affordable as affordability indices suggest.

About Author: Esther Cho

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