(Read more: Home values rise, but millions still drown in debt)
Mortgage rates are about a full percentage point higher today than they were at the beginning of March. The average rate on the 30-year fixed hit 4.80 percent by the middle of last week, according to the Mortgage Bankers Association. That is the highest since April 2011.
Rates have been trending higher on expectations that the Federal Reserve will begin to taper its investments in mortgage-backed securities.
Home prices are also trending higher in part due to the fact that there are fewer distressed properties for sale. Excluding distressed sales, prices were up 11.4 percent year over year. Distressed properties have seen big price jumps in the past year, as investors fight to get the remaining bargains.
Markets hit hardest by the housing crash have seen some of the biggest price gains: Nevada home prices were up 27 percent annually in July, California up 23 percent and Arizona up 17 percent. Completed foreclosures nationally were down 25 percent in July from a year ago, according to CoreLogic.
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Prices are also getting a boost from the sheer lack of properties for sale. Inventories are way down in local markets across the nation, and home builders are not ramping up production fast enough to meet new demand.
While the inventory situation is not expected to ease very much over the next year, home prices are expected to weaken slightly, as higher rates and weak income growth put a cap on just how high prices can go.