How Investors Are Skewing Home Price Recovery

Home prices finally appear to be catching up with the increase in overall sales pace. That is usually the case, as prices lag sales on the way up and on the way down. 

The latest reading from S&P/Case-Shiller, which employs a three month running average, shows home prices in June posted positive annual growth rates nationally and for the top ten and top 20-city composites. (Read More: Home Prices Rose in All Major US Cities in June: Case-Shiller.)

“I think this is a very strong report,” said S&P’s David Blitzer in an interview on CNBC. “I think this is a clear sign we’ve turned around.”

The summer months are usually stronger for home prices historically, due to the mix of homes that are selling. Larger, more expensive homes sell in the spring and summer, so that families can move without disrupting school. Still, the gains are showing not just month-to-month, but year-over-year, so seasonality should not play too much of a role.

What is playing a strong role is a combination of investor activity in the market and supply, both of which have been falling. Listed inventory in July was down nearly 24 percent from a year ago, according to the National Association of Realtors. Investor activity in the market fell to 21.9 percent of all transactions in July, according to a new survey by Campbell/Inside Mortgage Finance. That’s down from 23.5 percent in June and a two-year peak of 25.3 percent in May. (Read More: As Housing Boom Recovers, Will Apartment Boom End?)

From the survey:

Real estate agents responding to the HousingPulse survey indicated that recent price increases caused the sharp reversal in investor interest. “Investors are dropping out due to the increase in prices,” reported an agent in California. “Prices are too high here for investors,” added an agent in Massachusetts.

Thomas Popik, research director for Campbell Surveys, claims the drop in investor share is not just due to a rise in overall home sales and fewer distressed sales.  

“Overall homebuyer demand and home price appreciation is being driven by historically low interest rates,” Popik said. “But savvy investors are the canaries in the coal mine—they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down.”

Foreclosures have been falling steadily, with 58,000 completed in July, down from 69,000 in July of 2011, according to CoreLogic. (Read More: Cautious Moves on Foreclosures Haunting Obama.)

"Completed foreclosures were down again in July, this time by 16 percent versus a year ago, as servicers increasingly rely on alternatives to the foreclosure process, such as short sales and modifications," said Mark Fleming, chief economist for CoreLogic.

Given the unprecedented nature of the recent housing crash, there is not a lot of historical perspective to help us gauge if this is in fact a real recovery in home prices or a temporary bump due to a slowdown in distressed supply and a pull-back by investors. Seasonal factors will likely come into play in the fall, tempering home price gains. (Read More: Cities With the Most Affordable Homes.)

There is still too much noise in the numbers, however, to draw any firm conclusions yet. Nearly 12 percent of all homeowners with a mortgage are either delinquent in their payments or already in the foreclosure process, according to the Mortgage Bankers Association.  

Banks are still sitting on thousands of already-foreclosed properties, while the government looks to unload even more foreclosures through bulk deals. Record-low mortgage rates are beginning to rise again, and new rules governing the mortgage market that could further affect those rates are in the works. Too much noise.

—By CNBC's Diana Olick