Economy 
John W. Schoen
CNBC
13 hours ago
Justin Sullivan / Getty Images
A sold sign is posted in front of a home for sale on July 2, 2013 in San Anselmo, Calif. California's housing market is heating up, as are markets in Las Vegas and Phoenix, a survey showed Tuesday.
If you tried to buy a home in Phoenix a year ago, you probably would have been able to land it for well under the asking price.
Those days are gone. In a city that was hit hard after the housing bubble burst in 2007, you?re more likely to encounter a bidding war for that split-level ranch on the cul-de-sac you had your eye on.
Prices have leapt 20 percent in the last year in Phoenix. Real estate agent Tucker Blaylock says they will keep rising as long as interest rates remain near historic lows, thanks to the Federal Reserve.
?You can borrow money so cheap it?s really pushing prices up,? he said. ?A year or two ago, a buyer could bid 20- or 30-thousand under the list price and have a shot at getting it. Now sellers want list, or in some cases they get multiple offers and it?ll go above list price.?
It's not just Phoenix. The list of the hottest markets reads like the housing boom of the mid-2000s. In the past 12 months home prices are up 19 percent in Las Vegas. California hot spots include San Francisco (up 25 percent), San Diego (up 17 percent) and Los Angeles (up 19 percent.)
Nationwide, that momentum is dragging potential buyers off the fence, which is in turn feeding the higher prices, the experts say. Despite rising mortgage rates, demand for homes is surging with little sign of the bubble bursting anytime soon.
The latest monthly data from the widely followed Case-Shiller index showed home prices in May jumped 12.2 percent in the past year -- the biggest yearly jump since March 2006 -- supporting economists' views that the housing sector is one of the brightest spots for the economy.
In a handful of metro areas, housing is looking downright ?bubbly,? according to Robert Shiller, co-founder of the index. ?The cities that bubbled in the past are bubbling again,? he told CNBC. ?To me, it?s seems partly psychological. They?ve seen it before and they?re ready for it again.?
But unlike the historic mid-2000s bubble, there are signs the latest price surge is more sustainable. One is that the mix of buyers is shifting from bottom-feeding investors to homeowners who plan to stay awhile. In Phoenix, ?hot money? investors are cooling to new purchases even as prices keep rising, said Blaylock.
?It scares the guys who have been flipping stuff in the 100-to 200-thousand-dollar range that now they?ll have to pay 350,? he said.
(Read more: Home prices make biggest yearly jump since 2006)
And unlike the last bubble, mortgage lenders are much choosier when reviewing loan applications than the days when just about anyone with a pulse was approved.
Prices are also rising because the supply of homes for sale is getting tighter. Banks have shed much of their backlog of foreclosed properties. A four-year drought in home building, which is now beginning to ease, cut deeply into the supply of new homes.
One negative is that increasing mortgage rates could throw cold water on some of the hot markets. The average fixed rate on a 30-year mortgage hit 4.31 percent last week, up nearly a full percentage point since January, according to Freddie Mac.
?Once you put a five in front of it, it?s a different ballgame,? said Blaylock. ?People have been so trained to this 3-5 (percent) range that five seems high.?
But so far, the home sales data indicate that home buyers are taking the relatively higher rates in stride, especially investors with a short-term horizon. New home sales rose 8.3 percent in July, as builders reported continued strong increases in foot traffic. That put the pace of June sales nearly 40 percent above the same month last year.
?Higher mortgage rates don?t appear to be denting new home sales,? said Paul Diggle, a housing economist with Capital Economics.
That may be in part because, despite the recent jump in prices and mortgage rates, homes are still more affordable than they?ve been in decades, based on an index calculated by the National Association of Realtors. The index, which combines the impact of changes in home prices, mortgage rates and household incomes, has fallen sharply this year but still stands well above levels that typically have dampened home sales in the past.
While housing remain affordable by historical standards, the current recovery has left a large segment of U.S. households behind, including the more than 7 million whose homes were seized in the wave of foreclosures that followed the frenzy of reckless mortgage lending in the middle of the last decade.
The home ownership rate, which surged to 69.2 percent in 2004, has fallen back to 65 percent as of the second quarter, according to the latest Census data released Tuesday. The rate, now back to levels last seen in 1995, is expected to continue falling as more families move through a large backlog of pending foreclosures.
Many of those families are expected to remain renters, which has driven strong demand for new multi-family housing and strong rent increases in many markets.
To be sure, a continued rise in mortgage rates will eventually slow the climb in home sales and prices. But in the short term, the strong home price momentum is feeding on itself as buyers sitting on the sidelines fear paying higher prices by waiting.
?At least for the short term (prices) will probably continue to go up,? said Shiller. ?For a flipper now who can get out in a year, it seems to me like a fairly safe bet.?
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