Homeowners in negative equity are driving prices up in certain U.S. markets by sitting on the sidelines and refusing to sell at a loss, CoreLogic suggested in its July MarketPulse report. The end result is a lower inventory of certain homes and rising prices on what homes do go up for sale.

Home prices in May increased 2% from year ago levels, CoreLogic noted in its latest Home Price Index report. June prices also grew 1.4% over May levels.

As for what is driving all the price growth, CoreLogic claims in the 100 largest markets, those regions with the fastest appreciating values are in states carrying a high share of homes in negative equity and strong demand for distressed real estate.

"Negative equity is keeping many potential sellers out of the market, which keeps a lid on inventory and combined with the reduced flow of REO properties has led to much tighter market conditions for lower priced properties, particularly in the hardest hit markets," CoreLogic said.

CoreLogic discovered the lower end of the home market is rebounding at a rate that is three times faster than the rate recorded in the upper end. This is driven primarily by distressed sales at the lower end and strond demand.

The latest CoreLogic report also noted that refinancings accounted for 70% of the mortgage originations launched in the past 12 months.

kpanchuk@housingwire.com