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Housing Market Already Shows Signs of a New Bubble

In Florida, where there is a huge pipeline of distressed loans, foreclosures had been severely delayed due to the so-called "robo-signing" foreclosure processing scandal. After years of negotiations and now final bank settlements, foreclosures are moving again. This increased inventory may be what is slowing the big price gains.

More concerning is that the investor price drives are not playing out in other parts of the country, specifically in the South and Midwest.

In St. Louis, Chicago, Charlotte and Dallas, distressed properties are making up about one third of the market, often higher than markets out West, but home prices are either flat or down annually, a far cry from the jumps out West. That is because investors are not as interested in these markets. As banks now begin to ramp up foreclosures, not just in Florida, but especially in states like New York and New Jersey where judges had been holding up the process as well, more distressed inventory will come on the market with fewer potential buyers. That will push prices there down.

Essentially, the recovery is becoming increasingly bifurcated, with much of the nation still suffering as some markets see bubble price dynamics.

And here's just one more red flag.

Most of the investors in those bubble markets are big money, hedge funds. They have claimed that they are in the market to hold and reap rental rewards, but as prices jump, they may be inclined to take their profits now.

What we had thought were safer, long term buys, may now turn into the flips of the last decade. The question will be if there are enough non-investor buyers out there to support those sales?

True, consumer confidence in housing is returning. Improving employment is making home buying an option again. Price gains have brought many potential buyers out from underwater on their mortgages, allowing them to move again. Of course they would have to list their homes first, adding to inventory.

You can see where the dynamics become so complicated that it is easy to have huge housing optimism among the many warnings. Inventories are very low right now, and that is driving prices. Most predict prices will continue to rise through 2013, but prices always lag sales, and these prices are reflecting the sales of last year, the investor sales. If sales do not continue to be strong, and lately they have not been, then prices could easily turn in the hot markets and worsen in the still struggling markets.

--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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