The real estate market has made a significant recovery last year; prices of homes have increased about 8 percent.
But even though the market is gaining ground, there are experts in the industry who are concerned that it may not last.
One concern is that investors are the main contributors of the recent boost in home prices, according to the Center for Economic and Policy Research co-director Dean Baker. They are trying to make profits from low home prices and cheap interest rates and when those prices and rates go up, they will probably pull out, he said.
Baker said that this type of growth is unlikely to end well. Some of the substantial leaps in prices are brought by a similar kind of assumption that led to the initial housing bubble.
Though institutional investors have been acquiring most of the real estate properties, more and more novice armchair property investors are now purchasing – an indication that demand might be at its peak, Baker said.
In Phoenix, the price ranges rose up 23 percent as many investors are planning to lease the properties they purchased. But there was no corresponding increase in rents and the rate of rental vacancies in the city is really high. Baker said that demand will slow down after investors see that it is not profitable.
The pace of economic recovery is barely good enough yet. Jared Bernstein of the Center on Budget and Policy Priorities said that the economy might affect the housing market.
The employment rate slowed down substantially last month, with additional 88,000 jobs only – the lowest since June.
Government cuts will also hurt homeowners. Spending cuts worth $85 billion could also suppress the recovery of the housing market.
The spending cuts, which include days off without pay for federal employees, a slash in military budget and reduced unemployment compensation, along with the payroll tax breaks expiration, will result in income and job losses, Bernstein said.
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