Still, the gains in some market such as Phoenix has been so rapid, that people fear it is another bubble. Skeptics point to the fact that investors are driving demand, while first-time home buyers remain locked out of the market since mortgage credit conditions remain tight.
The impact of investors in the overall housing market is somewhat overstated. Analysts have pointed out that while investors -- big and small -- play an outsized role in some deeply distressed markets such as Phoenix and Las Vegas,
first-time home buyers
are returning in other markets.
Still, the fact that incomes have largely remained flat and mortgage credit remains tight means home ownership is within reach only to a privileged few. There isn't enough real demand for homes to support the rise in home prices, argue housing bears.
But prices are still not out of whack with fundamentals. What's more, home prices are likely to slow in the next year or two anyway, according to Trulia's Kolko.
For one, as home prices rise, inventory will expand as new construction picks up and sellers are lured back into the market.
Secondly, the current low interest rates will not last forever. Either a strengthening economy or Fed action could cause interest rates to rise, slowing price gains.
And finally, investor demand will slow as prices continue to rise and interest rates move higher.
But the recovery will likely remain intact. "Just as these factors should cause home prices to slow down, job growth and increased household formation should support a continued recovery in housing demand," wrote Kolko.
-- Written by Shanthi Bharatwaj in New York.