Home prices have been rising steadily for the past several months, but some fear the rapid increase could actually start hurting the housing recovery.
The reason is that the rise in prices is mainly due to investors, mostly large hedge funds, that have been swooping into the most distressed markets and inhaling properties as fast as their plentiful cash will allow. They are turning those properties into rentals, and getting anywhere from 8 to 12 percent returns on their investments, thanks to still hot demand. The trouble is, as home prices rise, those returns shrink.
"The worry with investment demand is that the very recovery in prices that it is driving will eventually reduce rental yields and undermine the investment case," warns Paul Diggle of Capital Economics.