Why the Housing Rebound Might Be Weaker Than It Seems
Life + Money

Why the Housing Rebound Might Be Weaker Than It Seems

iStockphoto/The Fiscal Times

With U.S. home prices jumping 12.1 percent from April 2012 to April 2013, it looks, at least on the surface, like the housing market is continuing to rebound from the dismal lows of the subprime bust and Great Recession.

April's tally was the largest increase in seven years, and states hardest hit by the housing crash saw some of the biggest gains. Nevada saw home prices increase by 24.6 percent; in California, that number was 19.4 percent.

The problem, writes Nathaniel Popper in The New York Times, is that many homes aren't being bought by families recovering from the Great Recession. Instead, Wall Street — the very collection of banks that helped create the bust by encouraging risky mortgages — is snapping up houses.

That means the recovery numbers might not be as encouraging as they seem.

"The growth is being propelled by institutional money," Suzanne Mistretta, an analyst at Fitch Ratings, told The New York Times. "The question is how much the change in prices really reflects market demand, rather than one-off market shifts that may not be around in a couple years."

Companies like the Blackstone Group, which has bought 26,000 homes in nine states, are investing billions in real estate in places like California, Florida, and Nevada. The firms have become temporary landlords, renting out the homes until it seems profitable enough to sell them.

On the plus side, damaged homes that normally would have gone unsold are being bought. And some analysts say that banks' large-scale investments could help lead to a more thorough recovery.

But that may be little consolation to individual home buyers.

Take Charlotte Dewaele. At six months pregnant, she's eager to find a house in California. The problem? She keeps getting outbid.

"We're getting beat out by people with cash, by investors, and by people putting in offers that are just so much higher," Dewaele, who has bid on 15 homes, told CBS News. "It's very frustrating."

Another issue: In many markets, home prices are growing faster than the local economies. That could be a problem, Mistretta told The New York Times, because the recovery could falter if big investment firms decide to cash out.

This article by Keith Wagstaff originally appeared at TheWeek.com. Read more from TheWeek.com:

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