Although real estate is local, in general, there are at least five significant contributors to rising prices: Housing affordability, increasing housing formation, rising rents, low inventory, and limited supply of distressed sales.
Housing affordability is attractive based on traditional metrics such as price-to-rent and price-to-income measures, largely because prices have fallen so far.  Housing is even more affordable considering today’s low mortgage rates.
Housing formation is revving up.  The U.S. is on track to add 1 million new households this year, up from 630,000 last year and an average of 570,000 over the past five years, according to economists at Bank of America Merrill Lynch.
Rents are rising.  Falling mortgage rates and improving job growth didn’t do much for housing last year, in part because buyers didn’t have much confidence or urgency.  Rising rents have changed that.
The share of distressed sales, such as foreclosures, are down, and in many Western markets, they are down sharply over the past year.
Inventories of homes for sale have plunged.  Inventories of new homes for sale are at their lowest levels in nearly 50 years as builders sharply cut back construction over the past three years.  Inventories of existing homes for sale are near a 10-year low, and down by one third over the past two years.  Many homeowners have held back from selling because they owe more than their homes are worth, and even those with equity don’t want to accept big declines in prices.