Fitch contends that home prices remain overvalued and that price growth is not being driven by fundamentals but by technical factors that could easily change. As more homes move more quickly to final foreclosure, especially in states that require a judge in the process and have seen huge delays over the past few years, supply will expand, possibly dramatically in some regions.
Mortgage rates may also be headed higher. Several members of the Federal Reserve Open Market Committee (FOMC) thought it would "probably be appropriate to slow or to stop purchases [of assets including mortgage-backed securities] well before the end of 2013," according to minutes of the committee's latest meeting. Doing so would push mortgage rates higher. (Read More: Mortgage Recovery Still Rocky.)
Fitch analysts admit price recovery will vary widely depending on the local market conditions, but their case seems more bearish than most. Or is it?
"I personally think that a lot of the price appreciation we're seeing in many markets right now is because the market of tradable homes is thinner than usual because of high negative equity," said Zillow's chief economist Stan Humphries. "This condition will change as home price gains pull homeowners out of negative equity and the market becomes more fluid."
Zillow's home value index was up 5.2 percent annually in November, but Humphries expects appreciation over the next twelve months of just 2.5 percent. He cites decreasing unemployment, rent increases, rising household formation and "essentially a five-year hiatus" in home building. (Read More: Most Affordable US Cities.)
Supply and demand, as they always have historically, will determine home prices going forward; unfortunately, both of those are currently too complicated and too economically sensitive to predict.