NEW YORK (TheStreet) -- The housing recovery has been one of the bright spots in the economy this year, but it has also been frustrating for many.
Home prices have rebounded across markets, with year-over-year price gains in the double-digits for some of the hardest hit markets.
The rapid recovery helped free more than a million borrowers who were trapped with underwater mortgage loans.
But not everyone could participate in the housing rebound. Many buyers, particularly young first-time purchasers, were shut out of the market due to the lack of access to credit.
Must Read: New Home Sales Rebound, Beating Expectations
For other home buyers, there were simply not enough homes available for sale, and competition from cash-rich investors drove prices higher, squeezing them out of the market.
Zillow expects home prices to continue to rise but at a more moderate, sustainable pace. Prices are expected to rise nationwide by 3%, after rising about 5% in 2013.
(Note that Zillow's index of home prices, which does not include foreclosure re-sales, has generally shown a more modest appreciation than other widely-followed gauges such as the S&P/Case-Shiller 20-City Composite Index.)
Higher mortgage loan rates, more expensive home prices and greater supply from new construction and fewer underwater homeowners should put a check on home prices. "For buyers, this is welcome news, especially for those in markets where bidding wars were becoming the norm and bubble-like conditions were starting to emerge," says Zillow chief economist Stan Humphries.
Housing is definitely not going to be as affordable as it was say a year ago, with mortgage rates poised to hit 5% by the end of 2014, according to Zillow. The monthly payment on a $200,000 mortgage will rise by $160.
Rates are still low by historical standards, but with incomes remaining stagnant, affordability is starting to become an issue in certain markets, particularly in California.
On the flip side, it might be less difficult to get a loan in 2014 than it has been this year. "The silver lining to rising interest rates is that getting a loan will be easier," according to Erin Lantz, director of Zillow Mortgages. "Rising rates means lenders' refinance business will dwindle, forcing them to compete for buyers by potentially loosening their lending standards."
The broader outlook for homeownership, however, is still bleak. Zillow expects homeownership rates to fall below 65% for the first time since 1995. Zillow's Humphries believes that homeownership may remain at these levels for a while, as the previous peak of 69% was fostered by a bubble and was unsustainable.
Zillow also has a list of the hottest housing markets for 2014. "Markets determined to be 'hot' are characterized by lower than average unemployment, population growth of greater than 2 percent during the past two years and are forecasted to have home value growth of more than 2 percent during the next 12 months."
Salt Lake City, Seattle and Austin, Texas top the list.
-- Written by Shanthi Bharatwaj in New York.