NEW YORK (
) -- An apparent surge in home prices has prompted concerns the country's housing market might be getting too hot, especially in more desirable places such as California and Arizona.
Such worries though are hardly warranted -- an overheated housing market isn't about to happen anytime soon, even though U.S. housing prices jumped 10.9% year-over-year in March, according to the S&P/Case-Shiller 20-city home price index.
Although we've seen some blips in some data points recently, the year-over-year trends are still good, according to
chief economist Dr. Stan Humphries. "Annualized, you're still seeing 10% to 15% year-over-year growth," Humphries said in a recent interview.
Inventories are in large part to thank for the housing market turnaround. Builders aren't building many new homes, and resales are still pretty tight, especially in some of the hotter markets.
Nationally through the end of February, sales were down 17% year-over-year, with the hotter markets, such as Los Angeles, Las Vegas, Phoenix, San Francisco, Portland, and others showing inventories down even more, in some cases, by as much as 40%.
Buyers are stepping up in droves because of low-interest rates, driven by the Federal Reserve's policies. "Buyers are being influenced mightily by zero-interest rate policy and quantitative easing," said
Jeffrey Gundlach in a recent
. "Those things together create a market that is much higher, therefore there is confidence in it."
Humphries echoed those thoughts, particularly, as they relate to the Federal Reserve's purchases of mortgage-backed securities. "The high affordability is attributable to low refinancing rates, as we sit around 3.5% on a 30-year fixed mortgage," Humphries noted. There are some concerns about affordability, particularly if the Fed continues to target 6.5% unemployment as its goal, a figure which may not be achieve until mid-2015.
"If we drive at these rates until 2015, we're going to push prices up above fundamental levels, and markets will be overpriced," Humphries said.
Not only are low rates fueling the surge but investors themselves are doing their part. Hedge funds, private equity funds such as
(BX - Get Report)
, and others are buying up single-family homes in droves, further adding to the inventory squeeze. Investors were the ones who were buying homes in foreclosed markets, however that's had a negative impact on home ownership rate. That's fallen from 70%, which is the average, to 64% or 65%.
Investors have been buying foreclosed homes, getting into the markets as early as 2009 or 2010, purchasing the properties with cash, financing them at attractive rates. In turn, the people who've owned those homes in the past are being thrown out, and the houses are then being rented. To a lesser extent, retirees and second-home buyers are also taking additional supply off the market.