But does this mean the recovery is sustainable? Chang is relatively cautious. "If it is true that owner-occupied buyers are driving the recovery, then the recovery will only be that much more dependent on cost and availability of mortgage credit. As it is, home prices are rising, so if mortgage rates were to return to their pre-bubble levels, affordability would fall considerably -- all at a time when income growth remains tepid," he wrote.

Chang expects that the market will likely be volatile going forward, with the pace of price and sales increases expected to slow and be very sensitive to interest rate changes.

If interest rates do stay long, the recovery in home prices will likely continue, though the bubble question will not go away. "The last time home prices went up because of cheap and easy mortgage credit, it led to the largest housing bubble in nearly a century," notes Chang. "Mortgage credit is cheap again, albeit for different reasons. But what happens if lending standards start to ease as well?"

-- Written by Shanthi Bharatwaj New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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