Asking home prices rose 0.3% quarter-over-quarter in January, illustrating the ongoing strength of the housing recovery, Trulia (TRLA) said in a new report.

Prices rose 2.2% quarter-over-quarter on a seasonally adjusted basis and 0.9% month-over-month from December, reflecting the highest gain since the price recovery began. Year-over-year, home prices saw a 0.9% bump overall and a 6.5% increase when excluding foreclosures. 

"In many local markets today, dramatic price gains can mask serious red flags," said Jed Kolko, Trulia’s chief economist. "Strong job growth, low vacancy rate, and low foreclosure inventory–not huge price gains–are signs of a healthy housing market. Without strong underlying market fundamentals, price rebounds might be here today, but gone tomorrow."


Conversely, markets like Chicago continue to struggle without strong market fundamentals and relatively low price gains.

Rent gains dropped below asking price increases at the national level for the first time since the price recovery began last spring.

Rents rose 4.1% in January year-over-year, slowing somewhat from 4.7% in July 2012. On a more minor scale, rent gains cooled the most in San Francisco, which only saw a 2.4% increases versus 11.5% in July 2012. 

"Rent gains are slowing down because of more supply, not less demand," explained Jed Kolko, Trulia’s chief economist. "Many of the multi-unit buildings that have been under construction over the past two years are now coming onto the market. Renters in San Francisco, Seattle and Denver are starting to get a touch of relief, even though rising prices might put homeownership out of their reach."

Click on the image below to show the metros where rents have cooled the most.