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In this Thursday, Dec. 20, 2012 photo, a sign hangs in North Andover, Mass., where a house is under construction. Sales of new U.S. homes cooled off in December compared with November, but sales for the entire year were the best since 2009. The Commerce Department said Friday, Jan. 25, 2013, that new-home sales fell 7.3 percent last month to a seasonally adjusted annual rate of 369,000. That's down from November's rate, which was the fastest in 2 � years.

Elise Amendola, Associated Press - Ap

Rapid home price rise brings worries

  • Article by: ALEJANDRO LAZO
  • Los Angeles Times
  • January 29, 2013 - 10:16 PM

The sharp increase in home prices -- particularly in regional markets such as Phoenix and Las Vegas, which had been so decimated by the bust -- is raising concern among some economists.

Indeed, home prices are now posting double-digit gains in some of the places where so-called negative equity is severe. According to data from Standard &Poor's/Case-Shiller, prices in Las Vegas were up 10 percent in November from a year earlier, and Phoenix was up 22.8 percent.

Those kinds of big increases could fuel speculation.

"It does concern me a bit," Zillow.com chief economist Stan Humphries said. "It encourages people to think about housing as a short-term investment, instead of a long-term investment."

The S&P/Case Shiller 20-city index rose 5.5 percent from the same month a year earlier, up in 19 of the 20 metro areas tracked. That was a strong increase and a sign that housing will probably continue to rebound this year with supply tight and demand strong.

With listings in particularly short supply -- the lowest in a decade, the Twin Cities posted the fourth-highest annual price gains among the 20 metro areas in the composite. November prices were 11.1 percent higher than a year ago, but were up slightly more than 1 percent compared with the previous month. When compared with 2012, the Twin Cities price gains were beaten only by Detroit, San Francisco and Phoenix.

While prices may be rising nationally, homeownership is struggling, an indication investors are playing a big part in fueling the market's rebound. The Census Bureau said Tuesday that national homeownership fell 0.6 percentage points to 65.4 percent in the fourth quarter, compared with the same period a year earlier.

Humphries said that the 5.5 percent increase in home prices was "really strong" and is "only going to get stronger," according to price data tracked by Zillow.

The spike in prices is masking the trouble that borrowers with underwater mortgages are facing. In fact, it's precisely because so many borrowers cannot get out from underneath their upside-down homes that prices are rising so much, economists have said, because those people are simply hanging on and not putting their homes on the market.

Staff writer Jim Buchta contributed to this report.

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