Home prices continue to chug along the upward trajectory.

The latest edition of the S&P/Case-Shiller Home Price Index shows that home prices rose in all 20 metropolitan areas the index tracks. What's more, not only were prices up, they were up strongly: Prices in the aggregate rose 1.2% month over month in February, which, when combined with previous monthly increases, produces a 9.4% year-over-year price gain – the highest annual gain since 2006.

To state the obvious, home prices have been on tear over the past 12 months. Many metropolitan regions have experienced double-digit year-over-year gains, and a select few are approaching triple-digit gains.

How times have changed.

In the dark days of 2009 and 2010, when home prices were continually trending lower, we repeatedly championed the need to remain positive. To be sure, the ride down was painful, but we reasoned that prices always bottom. Today, we see that in the majority of local markets prices have not only bottomed but have recovered nicely.

Prices continue to recover, and in many markets the price recovery has advanced to the point where prices are approaching previous highs. This tells us that the housing recovering needs to be viewed with a more discerning eye. We say that because this is a recovery unlike any other.

For one, the recovery is being driven by investors and not owner-occupied buyers. What really makes it unusual, though, is that institutional investors, who in the past drove the multi-family rental market (e.g. apartments), are buying single-family homes en mass.

For example, Blackstone Group, the world’s largest private equity firm, has invested over $3.5 billion to purchase 20,000 vacant and foreclosed single-family homes. In the past, this single-family rental market had been the domain of the small investor.

Not surprisingly, the Blackstones of the world are buying these properties and renting them. This makes economic sense. Vacancy rates are at multi-year lows, while rents are at multi-year highs. Rising rents warrant rising rental property values. Our concern is that we've never seen such a strong push into single-family rentals that we are seeing today. Is this creating a market-distorting effect? We can't say for sure.

We are also concerned by the rise in market speculation, particularly in the former bubble markets in Florida, California, and Arizona. We've noticed a considerable rise in the number of cable television shows devoted to rehabbing and flipping homes. RealtyTrac has even penned an article titled “25 Markets Where Flipping Homes is Most Profitable.”

In short, housing is showing signs of becoming the hot market again, and that alone is reason to vet the market more cautiously.

That said, we still view housing positively. We think there is plenty of improvement to be had in many markets. We also think there is plenty of room left to grow. After all, the upside to rising home prices is more mobility and more buying and selling.

What's more, the lifeblood of the market – financing – remains very attractive. Indeed, mortgage rates have fallen steadily over the past two months and are now flirting with the lows seen late last year.

The mortgage market is also showing signs of becoming more inclusive. More lenders are willing to venture into riskier lending. The Los Angeles Times reports that a growing number of lenders are embracing subprime lending. That's good news, because loans are being underwritten with eyes wide open. More important, they are being underwritten with the risk properly priced in.

And as for risk, it's something we need to become more aware of as the recovery progresses.

 Courtesy of Jessica Regan.

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