While sales of existing homes are still on a bumpy road to recovery, home prices are seeing steady gains.
Nationally, prices rose 2.6 percent in August, according to a repeat sales index from Lender Processing Services. Prices are up an even stronger 4.6 percent from the beginning of 2012. Much of the gains are due to big drops in sales and volumes of distressed properties (foreclosures and short sales).
(Read More: Why September's Housing Report Spooked Investors.)
The share of distressed properties in total home sales fell to a record low of 38.6 percent in September according to an index from Campbell/Inside Mortgage Finance. That is based on a three-month moving average. The "Housing Pulse" index is down 10 percentage points from the near-record-high 48.7 percent recorded in February of this year.
"The precipitous drop in the share of distressed properties in the housing market is largely attributable to fewer foreclosed properties or real estate owned (REO) being put up for sale by banks," according to the report. "HousingPulse respondents reported in October that major banks appear to be keeping many REO properties off the market this year. But they also suggest banks may be looking to unload significant amounts of REO next year — a move that could put downward pressure on home prices."
The impact the the dwindling number of foreclosed properties is having on home prices is most obvious in markets like Phoenix, where distressed sales made up the bulk of the market for the last few years. Prices there are up 17 percent from a year ago, although still down 41 percent from their peak in 2006, according to LPS.
(Read More: Cities With the Most Affordable Homes.)
Las Vegas home prices are up nearly 9 percent year-over-year, and many California metro markets are seeing similar gains. The trouble, again, is that sales are dropping off precipitously in those markets, due to a lack of supply. Investors had been fueling distressed home sales, but are now having a smaller impact because there is so little available. Prices always lag sales, and there is no reason to believe that will change.
Further weighing on future home price gains are coming changes in the mortgage market, which we noted on Wednesday. (Read More: Home Builders Need Mortgage Bankers to Keep Recovery Alive.)
Now another study is making dramatic claims about the impact of those new regulations. The authors, from the center-to-right-leaning American Action Forum think tank, claim that lending standards will get tighter and borrowing will get more expensive:
"We find using conservative economic assumptions that the bottom line effects of proposed Dodd-Frank and Basel III regulations may include up to 20 percent fewer loans, resulting in 600,000 fewer home sales. In turn, the resulting tightened lending and reduced sales are estimated to cost up to 1,010,000 housing starts, 3.9 million fewer jobs, and a loss of 1.1 percentage points from GDP growth over the next three years."
Others have already expressed concern over where the mortgage market is heading in 2013, as thousands of mortgage bankers met at an annual convention in Chicago this week.
"We've got some very major regulatory issues that need to be resolved and clear in people's minds before you get a really vibrant rebound in the market," said Bradley Shuster, President and CEO of National Mortgage Insurance.
Home prices and credit cost/availability go hand in hand. Record low mortgage rates are a stimulus, but they have now been around for so long that even a slight rise will have a direct effect on home buying. Potential buyers already complain of too-tight standards and too-high down payments. If those increase as well, home prices could easily take a turn back down.
—By CNBC's Diana Olick
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