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David Stockman, a former Reagan budget director and Wall Street investment banker, is convinced that the market is not what it seems.

He blames the ultra-low interest rates engineered by the Federal Reserve, which he said has encouraged investors to enter the housing market in droves with the goal of making easy money on low-priced homes and then quickly heading for the exits when interest rates reach more normal levels. It has created at least a temporary bubble in some markets, he told the Daily Ticker recently.

“We don’t have a real, organic, sustainable recovery,” he said. “In a world of medicated money by the central bank, things aren’t what they appear to be,” he said, noting that some of the sharpest, double-digit gains in home prices and sales recently have been in formerly distressed markets such as Phoenix and Las Vegas, which were devastated during the housing market collapse and have had a glut of foreclosed properties.

“It’s happening in the most speculative subprime markets, where massive amounts of ‘fast money’ are rolling in to buy, to rent, on a speculative basis for a quick trade,” he said.

Blackstone, a leading investment firm, has spent $3.5 billion buying single-family homes in nine markets in the past year and is expected to buy another 15,000 units this year. Other investment firms active in buying up houses are Colony Capital LLC and Two Harbors Investment Corp.

“As soon as they conclude prices have moved enough, they’ll be gone as fast as they came,” Mr. Stockman predicted.

The investment activity has obscured the fact that first-time buyers and trade-up buyers are largely missing from the market, he said, though these types of consumers are essential to ensuring that the market keeps rising under more normal circumstances.

Young potential homebuyers can’t find jobs, are weighed down by staggering loads of student debt and are unable or unwilling to buy homes, he said, while baby boomers are looking to trade down to smaller homes rather than trade up to larger ones as they approach retirement.

Investors fuel boom

An analysis by CoreLogic, a real estate information firm, bears out Mr. Stockman’s point that the 8 percent rise in home prices in the past year has been fueled by investors diving into formerly depressed markets such as Phoenix and Las Vegas, where hedge funds and other investor groups have been most active in snapping up foreclosed properties.

Home prices shot up at double-digit rates in the past year in areas targeted by investors — 23.2 percent in Phoenix, 15.3 percent in Las Vegas, 13.4 percent in Atlanta and 13.8 percent in Detroit — as investment funds entered the market en masse.

In addition, CoreLogic found that individual investors — who sometimes pay in cash but also obtain mortgages to buy homes — have been driving up sales and prices in other markets, most notably Los Angeles, San Francisco and San Diego, which experienced price gains of 12.1 percent, 17.5 percent and 9.8 percent respectively in the past year. Miami is another market where sales to investors, domestic and foreign, likely drove up prices by 10.8 percent in the past year.

The robust sales gains, primarily in the South and West, in turn fueled a jump of 8.1 percent in home prices nationwide, the fastest since the top of the housing bubble in mid-2006, according to the S&P Dow Jones home price index. But markets not flooded with investors, including New York and Chicago, experienced more subdued gains of 0.6 percent and 3.3 percent, respectively.

“The markets have been uneven” because of the concentration of investors in a handful of areas, said Sam Khater, an analyst at CoreLogic.

Individual investors usually have been much bigger forces driving up the market, he said, though they are less visible than the big investment funds. Individual investors purchased 600,000 homes last year — far more than their institutional brethren.

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