Only a year after the housing market bottomed, "bubble" talk has surfaced as soaring, double-digit price gains sweep markets across the country.
An open house in Cheviot Hills—a neighborhood in West Los Angeles—attracted 150 people and brought in 14 bids before the home sold for 7 percent above the listing price at $2.9 million.
A loft in Manhattan's SoHo district recently sold for $3.25 million after a bidding war pushed the price 10 percent above the asking price.
In Chicago's Wrigleyville area, a two-flat greystone was bid up to $850,000, 6 percent above asking price, and sold to a single-family home converter who plans to add another floor and put it back on the market for $1.8 million.
"Prices in some areas are just out of control," said Scott Tamkin, an agent with Keller Williams Realty in Los Angeles. "As soon as a good property comes on the market at a reasonable price—bam! It's gone in multiple offers, often times in cash."
U.S. home prices surged 12.1 percent in April from the same period a year ago, the biggest jump since February 2006 and the second straight month of double-digit gains, CoreLogic reported at the start of June.
Tight inventories, cheap money, and investor appetite are driving prices through the roof in some cities; particularly in hard-hit markets such as Phoenix and Las Vegas.
To be sure, not all areas are overheated nor have some even recovered since the downturn. But in most big cities, demand is hot, deals are quick, and many properties are getting bid up before selling for cash.
And even though home values are still a far cry from their peak in 2006, economists caution that prices in some areas have risen too far, too fast.
"It's clearly not sustainable," said Stan Humphries, chief economist at Zillow.
Wells Fargo Senior Economist Mark Vitner seconded that: "If investors don't back off soon, it could lead to a bit of a price bubble."
Prices have risen despite a lack of major improvement in fundamentals—namely jobs growth and incomes.
"Home prices need to moderate," said Lawrence Yun, chief economist at the National Association of Realtors. "It's bad news in terms of affordability and certainly not sustainable for prices to rise and incomes to lag."
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Americans spent three times their annual incomes on homes at the end of last year, above the pre-bubble norm of 2.6 times, according to online real-estate company Zillow. Homes cost roughly 15 percent more than historic averages relative to incomes.
Record-low borrowing rates have fueled demand and, now the threat of rising rates has created an even greater sense of urgency to get off the sidelines and jump in before rates climb higher and make housing less affordable.
"We've seen some increase in sales because of the threat of a modest increase in rates," said Douglas Yearley, CEO of luxury home builder Toll Brothers.
Mortgage rates rose to 4.17 percent for the week ended June 14, according to the Mortgage Bankers Association. Rising Treasury yields have pushed rates to the highest level since March 2012, though they still hover near historic lows. The 30-year fixed rate mortgage bottomed at 3.47 percent just six months ago.
Bubble? Not Everywhere
Certain markets are more prone to volatile swings in real estate value, as inventory buildup can take years, and demand effects can lag.
Parts of the county—most notably big cities in the Sun Belt region, like Los Angeles and Phoenix—are seeing gains of nearly 20 percent, while prices in areas like Chicago and Philadelphia are up a meager three percent, according to CoreLogic. Prices in Baltimore, Nashville, and Columbia, Mo., are up a modest 3 percent to 5 percent, reports the National Association of Realtors. In other markets, prices are flat or, in some cases, declining.
About three hours outside of Philadelphia in Adams County, Pa. (home to Gettysburg) the average home price fell 4 percent to $156,000 in the first five months of this year versus last year.
"There's no indication we're seeing a bubble," said Amy Fry, an associate broker at Coldwell Banker Select Professionals. "The area is overbuilt from the last bubble. Until that inventory sells off, prices won't stabilize."
Allentown and Erie, Pa., are also among the cities tracked by the National Association of Realtors that saw price declines in the first quarter of this year. Prices fell 8 percent and 6 percent, respectively. Of the 150 metropolitan areas the National Association of Realtors tracks, only one-tenth saw prices drop in the first quarter.
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Nationwide, home prices tanked 33 percent from peak to trough in the last boom-bust cycle and still remain about 20 percent below their April 2006 high, according to CoreLogic. It was just over a year ago that the market bottomed in February 2012.
Despite the recent price surge in certain parts of the country, online real-estate firm Trulia says prices still remain about 7 percent undervalued.
"We're pretty close to the pace of price increases that we saw during the last bubble, but the level [average price] is much lower," said Trulia Chief Economist Jed Kolko.
A big difference between the current buildup and the previous bubble is that we are only in the early innings of double-digit price gains. March home prices rose greater than 10 percent, according to the S&P/Case-Shiller 20-City Composite. That was the first double-digit gain the index saw since April 2006.
In stark contrast, home prices soared double digits for 45 straight months from August 2002 to April 2006, Case-Shiller data show. Price appreciation peaked at 17.1 percent in the summer of 2004.
Trulia identifies eight markets as overvalued relative to historical prices, incomes, and rents. They include Orange County, Austin, San Antonio, Los Angeles, San Jose, San Francisco, Houston, and Portland.
"I wouldn't be surprised if a bubble happened again," said Eileen Bermingham, a local realtor servicing the Bay Area. "It definitely has the same characteristics as the last time it happened."
Prices in San Francisco climbed more than 30 percent in the first quarter, according to the National Association of Realtors. Trulia estimates the market is two percent overvalued—far less than the last boom when San Francisco prices were overvalued by as much as 52 percent.
"People are afraid prices are just going to go up and up and up," Bermingham said.
Speculators and Investors
Speculators are back in mix, taking advantage of easy money, distressed properties, momentum in markets, and price differentials between renting and owning.
Susquehanna Senior Regional Bank and Housing Analyst Jack Micenko noted that buying a home is still far cheaper than renting in the current environment. He says rates would need to rise to 7 percent before buying and renting reach parity.
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"I'm surprised by how much speculative activity is back on the markets given all the pain we went through in the housing bust," Vitner said. "Fuel is coming from Wall Street, which is, in effect, coming from the Fed."
Institutional investors, who account for roughly one-fifth of home purchases, are partially responsible for driving up prices in some of the hardest-hit markets. They started buying in Arizona, Florida, and Nevada; but are now turning their attention to the Midwest and Southeast, scooping up homes in Memphis, Indianapolis and Atlanta.
"People are speculating, but they're doing it with their eyes wide open," said Dr. Mark Fleming, chief economist at CoreLogic. "I don't see speculation happening on incorrect expectations."
Investors began ramping up purchases in 2011, many with the intent of renting out the properties to collect a steady stream of income. Blackstone and Colony Capital are two institutional investors capitalizing on cheap money and distressed, or discounted, homes.
Blackstone started purchasing properties last year and is present in 13 markets across seven states, including Florida, Arizona, California, and Georgia—all four of which fall in the Sun Belt region. The firm has bought 28,000 homes to date.
Colony Capital is also actively buying, targeting $3 billion in purchases by the end of this year. The real estate firm started snatching up homes 18 months ago and has paid $1.8 billion for just over 12,000 properties so far.
The effect of having buyers with shorter investment horizons than the average household could be problematic."We won't really know how big of a force they [investors] are until they aren't there," Vitner said.
The good news is investors are paying for homes in all cash three fourths of the time, according to the National Association of Realtors. That implies at least one-fifth of the market is resilient to the threat of rising rates because investors are rarely borrowing money.
Kolko and Fleming highlight that investor demand seems to be waning as firms wind down their acquisitions and turn their focus to renting and managing the properties. With less investor appetite out there, the pace of price appreciation could slow.
Credit Is Still Tight—for Now
Economists point to tight credit as a key difference between the current environment and the buildup in the middle of the last decade. However, a survey of realtors conducted by the National Association of Realtors at the end of May highlights that loans were frequently available at smaller banks and credit unions.
Corey Alhawat, a mortgage banker at Cardinal Financial in New Jersey, says his bank will provide a FHA loan to a client with a minimum credit score of 640. He says he's seen other lenders who will do a FHA loan, with a 3.5 percent down payment, for someone with a score as low at 580.
"If we have even a slight reversal [in home prices], we're going to be stuck in a much worse position than what happened five years ago," Alhawat said.
Economists are cautious to dub the buildup as a bubble just yet. Though rising speculation, still cheap money, and potentially easier lending would give prices room to run.
"We've never been able to truly identify bubbles until after the fact," Fleming said.
—By CNBC's Kristen Scholer. Follow her on twitter