Glinkonomics (Ilyce’s take on what’s going on in the economy this week), Ilyce discusses how home prices are rising too fast and why it’s concerning for the housing market.

It has been five years since the housing crisis and home prices have been rising too fast. This may be a cause for concern because it usually takes a long time for prices to come back. And we have seen increases of 10, 12, 15, and in some cases, 25 percent in the last year.

The number of home sales is falling, yet home prices are rising, so there are some new theories on this “home value volatility.” With hedge funds and private equity firms snapping up homes as soon as they hit the market, home prices are rising too fast. And investors are buying an abundance of homes, which is stopping values from deflating right in their tracks. Yet at the same time, it’s supporting home values that are moving up. This should be scary for you, it’s terrifying for me.

The reasons home prices are rising too fast isn’t from natural forces. What’s happening is large swaths of homes at the very bottom are being taken off the market by investors. The prices then go up to the next lowest level and those are all taken off the market by investors. Because of this, there has been talk of another bubble coming.

I want to see home values rise, so I’m not suggesting they should stay low for anybody’s sake. Instead, what I think is interesting is the notion that the problems in the housing market are going to be fixed. But with this new concern, it changes how all of us have to think about our houses. It changes what we do to our houses and the improvements we make within them. Even if you’re planning on staying in your house for thirty years, the quality of the investment will change and you may no longer be able to count on what you used to. And if that truly comes to pass, we’re going to see residential real estate take on an entirely new character, and it may cause house prices to be something else entirely.

WSB Radio’s Ilyce Glink Show – October 27, 2013

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