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Firm Says National Home Price Gains Are Unsustainable

While some read recent home price gains as a sign of an improving market, ""Radar Logic"":http://www.radarlogic.com/ warns the recent gains are ""unsustainable"" and may actually be dampening market recovery.

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Radar Logic attributes recent house price gains to anomalous factors it considers temporary, including low interest rates and elevated investor demand. ""None of these drivers are likely to last, particularly as housing prices increase,"" RadarLogic stated in its December RPX Monthly Housing Market Report.

The firm calculated an 11.8 percent price increase year-over-year in December, according to its RPX Composite of 25 metropolitan areas.

Radar Logic anticipates prices will decline again as rising prices begin to repel investors while simultaneously leading to bursts in supply as homeowners and financial institutions feel encouraged to list properties for sale.

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Already, home builders have begun to add to supply with a 23.6 percent rise in single-family housing starts year-over-year in January, according to data from the Census Bureau.

However, according to Radar Logic, when prices decline again, the market ""will once again attract speculative demand and chill starts and sales.""

Radar Logic anticipates prices will ""follow such a saw-tooth pattern for a number of years.""

A true recovery in home prices is contingent on rising employment and a return of consumer confidence, ""neither of which are much evident at the moment,"" according to Radar Logic.

In the meantime, the firm has detected a decline in distressed home sales and a rise in corporate investor purchases.

Corporate investors ramped up their activity last year. The group contributed 12 percent of total sales in November 2012, up from 8 percent a year earlier.

A majority of this increase took place in the non-distressed market, where corporate investors had previously been more active.

Radar Logic attributes this shift away from foreclosure and REO sales to diminishing REO inventories and increasing REO prices. In fact, when corporate investors did purchase REO properties through November 2012, they paid 25 percent more than in the previous year. The prices they paid for other types of properties remained about the same.

Corporate investors were most active during November in hard-hit markets. In fact, half of all corporate purchases took place in just five markets-ones considered especially affected by the housing crisis. Those markets include Miami, Los Angeles, Phoenix, Atlanta, and Las Vegas.

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