The housing recovery is still in its early stages. However, some market watchers warn that home prices could overheat because the pool of existing residences is contracting. They say this year’s house-hunting season may reveal if 2012’s steady price increases can sway enough owners to put their homes up for sale and meet the rising demand.

The number of existing properties on the market decreased 8.5 percent in December from the month before to 1.82 million — the lowest in almost a dozen years. Inventory is currently 22 percent below a year earlier and considered even tighter for low-priced homes.

Meanwhile, the supply of NEW single-family homes has just started to expand. Unless inventories return to normal, prices will come under excessive pressure with more properties seeing multiple bidders vying for the sale, cautions National Association of REALTORS® spokesman Walter Molony.

Prices for existing homes rose 6.3 percent in 2012 and are on pace to appreciate another 5 percent to 6 percent this year. If inventories remain constrained, though, Molony says it is possible that prices could climb as much as 10 percent.

Source: Investors Business Daily