Home prices in Atlanta were up 10 percent in December from a year ago, but a year ago they were down 17 percent year-over-year, on the S&P/Case Shiller Index. What changed? Investors. As Atlanta's foreclosure rate soared, investors, no longer finding the big bargains out West, began moving into Atlanta and snatching up distressed properties at a brisk pace.
"Market prices have to go higher to provide incentives for more new houses to be built," said Aaron Edelheit, CEO of Atlanta-based The American Home, a company that invests in distressed properties and turns them into rentals. "I believe we are on the cusp of a massive housing shortage in many parts of the country due to the historic lack of residential investment in the last five years. This summer, I expect the housing market to be 'blue flame' hot."
(Read More: What Tops Home Buyers' Wish List Now)
Prices today are rising fast because supplies of homes for sale are so low. Both new and existing homes are running near four month supplies.
For new homes, builders just aren't able to start fast enough, due to labor and land restraints.
For existing homes, there are fewer distressed properties for sale, a segment that has driven the market into recovery, and organic homeowners are either unwilling to list their homes for fear of selling at the bottom, or unable to list because they are still underwater on their mortgages.
(Read More: Foreclosures Fall Due to New Laws)
"Taking new and existing homes together, the relationship between the months' supply of unsold homes and house prices points to an acceleration in the pace of house prices gains in the year ahead," said Paul Diggle of Capital Economics.