With inventories shrinking, home sales picking up, and mortgage rates likely to start rising, a lot of the drivers of housing prices are up-ending.

“The various measures of house prices appear to be sending different messages, but on balance it looks like price gains have picked up again following outright falls earlier in the year,” says Paul Diggle, property economist for Capital Economics, in a note to client. “The Case-Shiller 20-City measure declined again in August, but the national measure rose.”

He says that the recent growth in home prices is being driven by stronger home sales and a contraction in the inventory of homes for sale.

“Nevertheless, with housing no longer obviously undervalued, the scope for strong and sustainable price gains is limited,” Diggle says.

Factors influencing all this include the following:

  • Labor market slack is diminishing, which will prompt the Federal Reserve to begin raising interest rates in the first half of next year.
  • Mortgage interest rates fell despite the end of QE3, providing support to the already favorable level of affordability.
  • Mortgage lending and new home sales were subdued in the latest data, but existing home sales rose.
  • Monthly house price gains have accelerated out of the slight downturn seen during the middle of the year.
  • Activity early in the home-buying timeline is weakening, with consumers’ plans to buy homes declining last month.

“Monthly house price gains have accelerated out of the slight downturn during the middle of the year,” Diggle says. “But we are not convinced that the annual rate of price growth will pick up much.”