Where home prices are rising for the wrong reasons

by 18 Jun 2012

(CNN Money) -- For the past five years, underwater mortgages have been one of the biggest obstacles blocking the recovery of America's housing market. Now, in an ironic twist, the hundreds of thousands of borrowers who owe more than their homes are worth have actually been helping the housing market in some places.

Nationwide, home prices in April increased 1.1% from a year ago, according to data firm CoreLogic's June report. Many underwater borrowers have delayed putting their homes up for sale until prices move higher, pushing the supply of homes to its lowest level (6.5 months' worth) in more than five years.

The paradox is benefiting some cities hardest hit by the 2008 housing crash. After all, as a rule of thumb, anything less than six months' worth of supply helps push home prices upward. And many cities and states have seen supplies drop as low as two months' worth.

But while negative equity may be helping the housing market today, it's hard to argue how prices could move much higher over the long-term. Tighter lending standards, joblessness and other arguably bigger factors continue to weigh on the housing market. 

Here's a look at four cities where home prices are rising for all the wrong reasons.



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