If you tried to buy a home in Phoenix a year ago, you probably would have been able to land it for well under the asking price.
Those days are gone. In a city that was hit hard after the housing bubble burst in 2007, you're now more likely to encounter a bidding war for that split-level ranch on the cul-de-sac you had your eye on.
Prices have leapt 20 percent in the past year in Phoenix. Real estate agent Tucker Blaylock said they will keep rising as long as interest rates remain near historic lows, thanks to the Federal Reserve.
"You can borrow money so cheap; it's really pushing prices up," he said. "A year or two ago, a buyer could bid $20,000 or $30,000 under the list price and have a shot at getting it. Now sellers want list, or in some cases they get multiple offers and it'll go above list price."
Nationwide, home prices are on a powerful roll, never mind the slight tick up in interest rates recently. And that momentum is dragging potential buyers off the fence, which is, in turn, feeding the higher prices.
Experts say while the housing market is percolating in many places around the country, we're a long way from seeing the bubble burst. A variety of factors-the large number of underwater homes, the wariness of buyers to plunder their homes' equity, rising interest rates-are acting as a counter-weight to the rising demand.
The latest monthly data from the widely followed Case-Shiller index showed home prices in May jumped 12.1 percent in the past year, with even bigger gains in some red hot markets.
In a handful of those metro areas, housing is looking downright "bubbly," according to Robert Shiller, co-founder of the index.
"The cities that bubbled in the past are bubbling again," he told CNBC. "To me, it's seems partly psychological. They've seen it before and they're ready for it again."
(Read more: US home prices jump in April, setting record )
But unlike the historic mid-2000s bubble, there are signs the latest price surge is more sustainable. One is that the mix of buyers is shifting from bottom-feeding investors to homeowners who plan to stay awhile. In Phoenix, "hot money" investors are cooling to new purchases even as prices keep rising, said Blaylock.
"It scares the guys who have been flipping stuff in the $100,000 to $200,000 range that now they'll have to pay 350," he said.
And unlike the last bubble, mortgage lenders are much choosier when reviewing loan applications than the days when just about anyone with a pulse was approved.
Prices are also rising because the supply of homes for sale is getting tighter. Banks have shed much of their backlog of foreclosed properties. A four-year drought in home building, which is now beginning to ease, cut deeply into the supply of new homes.
The list of the hottest markets reads like the housing boom of mid-2000s. In the past 12 months home prices are up 19 percent in Las Vegas. California hot spots include San Francisco (up 25 percent,) San Diego (up 17 percent) and Los Angeles (up 19 percent.)
But the latest price numbers are for May, during a marked increase in mortgage rates that some market watchers caution could throw cold water on some of the hot markets. The average fixed rate on a 30-year mortgage hit 4.31 percent last week, up nearly a full percentage point since January, according to Freddie Mac.
(Read more: Map: Tracking the US real estate recovery )
"Once you put a five in front of it, it's a different ballgame," said Blaylock. "People have been so trained to this 3 to 5 (percent) range that five seems high."
But so far the home sales data indicate that home buyers are taking the relatively higher rates in stride, especially investors with a short-term horizon. New home sales rose 8.3 percent in July, as builders reported continued strong increases in foot traffic. That put the pace of June sales nearly 40 percent above the same month last year.
"Higher mortgage rates don't appear to be denting new home sales," said Paul Diggle, a housing economist with Capital Economics.
That may be, in part, because, despite the recent jump in prices and mortgage rates, homes are still more affordable than they've been in decades, based on an index calculated by the National Association of Realtors. The index, which combines the impact of changes in home prices, mortgage rates and household incomes, has fallen sharply this year but still stands well above levels that typically have dampened home sales in the past.
While housing remain affordable by historical standards, the current recovery has left a large segment of U.S. households behind, including the more than 7 million whose homes were seized in the wave of foreclosures that followed the frenzy of reckless mortgage lending in the middle of the last decade.
The home ownership rate, which surged to 69.2 percent in 2004, has fallen back to 65 percent as of the second quarter, according to the latest Census data released Tuesday. The rate, now back to levels last seen in 1995, is expected to continue falling as more families move through a large backlog of pending foreclosures.
Many of those families are expected to remain renters, which has driven strong demand for new multi-family housing and strong rent increases in many markets.
(Read more: Mortgage delinquencies take a sharp turn up )
For those who have managed to hang on to their houses, the ongoing surge in home sales and prices is being felt beyond real estate offices and home builder showrooms.
The housing recovery is helping to repair the $6 trillion hole in household wealth created by the 2008 financial collapse. Since hitting bottom last year, rising home prices have added roughly $1.8 trillion to household wealth, or about a third of what was lost since the 2006 peak,according to Bank of America (BAC)economist Michelle Meyer.
As households have recouped some of their lost home equity,they've also substantially pared down debt, a sometimes painful process than has cost millions of Americans their homes in foreclosures.
Those who've kept their homes are much more leery about using it as a piggy bank. The volume of so called "cash out" mortgage refinancing has fallen to less than 10 percent of the peak level hit in 2006, as both consumers and lenders have become a lot more cautious.
That improvement in household finances, along with a gradual upgrade in the job market, is helping an otherwise feeble economic recovery move ahead. A strong rebound in housing, along with strong consumer spending on everything from household goods to cars, is being offset by the ongoing drag of federal spending cuts and badly-stretched state and local government budgets.
The strength in household spending, and the offsetting drag from government cutbacks, will be brought in clearer focus Wednesday when the government offers up its initial estimate of gross domestic product growth in the quarter that ended in June. Most forecasters are expecting the report to show the economy slowed to 1.1 percent annualized growth, down from 1.8 percent in the first three months of the year.
To be sure, a continued rise in mortgage rates will eventually slow the rise in home sales and prices. But in the short term, the strong home price momentum is feeding on itself as buyers sitting on the sidelines fear paying higher prices by waiting.
"At least for the short term (prices) will probably continue to go up," said Shiller. "For a flipper now who can get out in a year, it seems to me like a fairly safe bet."
-By CNBC's John W. Schoen. Follow him on Twitter @johnwschoen.
- Real Estate