Here's What Is Really Behind Home Price Gains

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The numbers just keep going up. Home prices are defying gravity and expectations, which has some asking exactly how real they are and what is driving them. The answers lie, again, in the numbers, which vary depending on what particular report you choose.

Home prices nationally, including sales of distressed properties, rose 10.5 percent in March from a year ago, according to a new report from CoreLogic.

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That report is based on repeat sales of homes over time. Another widely-watched report, the S&P/Case-Shiller Home Price Index shows home prices were up 9.3 percent in February in the top twenty markets.

This is also a repeat sales index, but it is based on a three-month running average. The National Association of Realtors reported median home prices up nearly 12 percent in March, but being a median, that number relies on the mix of homes sold. It is higher because fewer low-end distressed homes and more higher-priced, non-distressed homes are selling; that skews the median higher.

Those are just a few, but suffice it to say prices are rising based on higher demand and abnormally low supply. Supply, ironically, is low because so far regular home sellers who don't have to move would rather not sell into a market that is just beginning to recovery.

Also, many homeowners are still underwater on their mortgages, and therefore they would have to pay into their current homes in addition to paying for a new one.

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But why are the price jumps so high? Some say it's all relative.

"Market observers shouldn't be fooled by the large headline numbers," warned Alex Villacorta, director of research and analytics at Clear Capital, a data provider. "Last year was a turning point for the market where the year started with prices at virtually their lowest point and saw a very strong correction through the year. Much of the gains we see right now in the yearly trends are a reflection of the market lows in 2012, rather than a function of recent short-term momentum."

Villacorta expects these big gains to subside as the market stabilizes and more supply comes up for sale. He sees the recovery of housing itself, not some broader economic resurgence, as housing's main driver.

"Moderate improvements in the broader economic landscape likely haven't offered potential homebuyers strong reason to jump back in at the start of the season. We do expect to see more buyers and sellers ready to take action over the next several months as rising prices continue to free up some underwater mortgages," he offered.

With home price gains running at more than twice the pace of income or rental growth, some are raising concerns of a bubble, but that is likely premature, according to researchers at Capital Economics. They noted that the strongest gains are out West in the markets where prices fell the most. Strong gains show how undervalued these markets are currently.

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"If house prices and incomes continued rising at their current rate, the house price-to-income ratio wouldn't return to its long-run average until 2017," said Paul Diggle, a property economist at Capital Economics.

What is really driving home prices is a return of consumer confidence. Twice as many Americans now think it's a good time to sell, according to a new Fannie Mae survey, largely because the majority believe prices will continue to rise.

Again, the recovery is feeding on itself. A lack of supply, coupled with new demand, is creating more competition and consequently higher offers. As that confidence grows, so too will supply, which of course would then ease the price gains as some have suggested.

"As inventory continues to decline, motivated buyers are turning their attention toward traditional listings," said Eric Locher president of the Charlotte Regional Realtor Association. "Sellers are responding and showing more confidence as new listings were up a welcomed 12 percent in April. We believe this activity will continue. These are the signs of a healthy market."

—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

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