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Home Price Bottom or Bubble?

"We were heavily into Phoenix early in the cycle. Those markets are heating up," said James Breitenstein, CEO of investment firm Landsmith in an interview on CNBC Monday. "We see a shift more to the east, states like North Carolina, Michigan, Florida."

While home prices on the Zillow index are improving most in formerly distressed markets, like Miami, Orlando and much of California, they are still dropping in other non-distressed markets, like St. Louis (down 4% annually) Chicago (down 5.8% annually) and Philadelphia (down 3.5% annually).

"Those people looking at current results and calling a bottom are being dangerously short-sighted," said Michael Feder, CEO of Radar Logic, a real estate data and analytics company. "Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short."

Radar Logic sees price increases as well, but blames that on mild winter weather that temporarily boosted demand. This means there will be payback, or weakness in prices during the latter half of this year. And even without the weather hypothesis, they see further trouble ahead:

"On the supply side, higher prices will entice financial institutions to sell more of their inventories of foreclosed homes and allow households that were previously unable to sell due to negative equity to put their homes on the market. As a result, the supply of homes for sale will increase, placing downward pressure on prices. On the demand side, rising prices could reduce investment buying," according to the Radar Logic report.

Investors are driving much of the housing market today, anywhere from one third to one quarter of home sales. That makes these supposedly national price gains more precarious than ever, because they are based on a finite supply of distressed homes and that supply is dependent on the nation's big banks. First time home buyers, who should be 40% of the market, are barely making up one third, and millions of potential move-up buyers are trapped in their homes due to negative and near negative equity.

--Written by Diana Olick at CNBC
CNBC is a world leader in business news, providing real-time financial market coverage and business information.
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