Home prices rose 12.1% in April, making their strongest gains in seven years, according to the Standard & Poor's Case-Shiller Index released Tuesday.
Price gains are likely to slow later this year and decelerate even further next year, says Paul Diggle, economist with Capital Economics.
That's because, as prices rise, the value of owning a house compared with renting starts to shift more toward renting.
Also, higher home prices mean investor buyers have to look harder for bargains. As investors slow purchases, there will be less competition for homes, especially for the lower-priced ones favored by investors.
At the same time, more home sellers are entering the market. That increase in supply will lead to smaller price gains since tight inventories have been a big driver of price increases, Diggle says.
The number of homes for sale appears to have bottomed in January and is up 6.1% since then, he says.
Higher interest rates may also make home ownership less affordable for some buyers.