If you thought that all you wanted was skyrocketing appreciation on your home, then Fitch Ratings is warning you to think again. According to a new report from the data analysis firm, recent home price gains may be “too rapid” and contributing to a “market imbalance that could eventually stall or reverse the positive trend.” Fitch warns that in some markets an “artificially” constrained supply of homes for sale is keeping prices high even though buyers do not actually have the wherewithal, as a population, to sustain these purchase prices[1]. Fitch added that “strong institutional investor demand… [is keeping] the supply-demand balance…even more pronounced.”

The ratings agency spotlighted California as a state where the recovering market’s fast pace could present a problem. California home prices have risen 13 percent year-over-year despite employment crunches in many parts of the state. If employment does not soon catch up to housing, this new bubble could burst, analysts warn[2]. In San Francisco, home prices are up 22.2 percent year-over-year, and are only going higher thanks to “restricted supply and heightened demand.” Fitch says that more and more borrowers are likely to move to the sidelines in areas where the recovery is “too rapid” in order to wait for prices to stabilize.

Do you think that there is any such thing as a recovery that is too rapid? Is Fitch “crying wolf” or is there a potential problem in the works?

 

[1] http://www.dsnews.com/articles/fitch-price-gains-may-be-too-rapid-in-certain-markets-2013-05-31

[2] http://www.reuters.com/article/2013/05/28/residential-recovery-fitch-idUSL2N0E915F20130528

by Carole VanSickle