But not all are bullish on the builders, especially those that concentrate in the formerly hard hit housing markets like Arizona and California. Inventories are low in these states and prices are surging largely because of huge investor demand for foreclosed properties. With a strong, new single family rental market, investors rushed in and are cashing in on rents, but some say that demand is already starting to ease.
"Despite multi-billion dollar buying sprees by well-funded Wall Street hedge funds, real estate investors bought fewer properties in 2012 than they did in 2011, which was a record year for investors. Investment-home sales declined 2.1 percent to 1.21 million from 1.23 million in 2011, but those sales had been well under a million during the market downturn," according to a new survey from the National Association of Realtors.
Meanwhile, previously surging single family rents are flattening. Nearly 4 million more single-family homes have been added to the rental market since 2005, according to Trulia.com. Supply has finally caught up with demand, with single family rents up just 0.1 percent in March from a year ago. That has housing bears roaring again.
(Read More: Deep Freeze: Home Sales Barely Budge in Spring)
"In Phoenix—like Las Vegas, Florida, the Inland Empire, Central Valley et al—we now have a rental supply glut," said Mark Hanson, a California-based housing and mortgage analyst.
"Wherever the institutional money has gone in and ravaged is high risk for housing investment or building. These regions have become highly volatile speculative regions in which prices can rise 20 percent one year and fall 15 percent the next. The insti's have turned these markets into something I have never seen before...more like high-beta, speculative, volatile tech stock markets than housing markets."
Prices are soaring in these markets because all-cash investors are finding very little left to buy. Regular buyers can't compete with investors, so they are heading to the home builders. The builders were caught off guard, because they did not foresee this dynamic. Now they are rushing back to meet demand, while having no idea how long that demand will last. Why? Because when home prices get high enough, investors could cash out, pushing inventories higher and prices lower.
The birth of the new asset class, the REO (bank owned foreclosures) to Rent model, put a floor on home prices and reduced distress dramatically in the market. It also, however, added a new volatility to housing for years to come.
If investors hold and rent the homes, recovery will continue apace, but if sentiment shifts, and investors see bigger returns in sales than rents, the game could turn quickly.
RealtyCheck producer Stephanie Dhue contributed to this report.
—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC
Questions? Comments? RealtyCheck@cnbc.com