“By the time the first open house is over the offers are coming in, sometimes above asking price,” London said. “There’s a lack of quality inventory -- that’s fueling it.”

In much of the country, inventory has been drained by institutional investors such as Blackstone Group LP and Colony Capital LLC buying single-family homes, often foreclosures, to turn into rentals, said CoreLogic Chief Economist Sam Khater.

Blackstone, the largest buyer in the U.S., spent more than $4 billion on 24,000 rental properties last year. The company recently bought 1,400 residences in Atlanta, the biggest bulk deal for the fledgling homes-for-lease industry. Such purchases helped to drive prices up 12 percent in March from a year earlier in Georgia, where values only rose 1.2 percent six months earlier, Khater said.

Moderating Prices

Appreciation in Arizona is moderating as investors look in other markets for better yields, Khater said. Prices in the state rose 17 percent in March from a year earlier compared with a 20 percent increase in September 2012, he said.

Vitner of Wells Fargo said investors are buying properties as quickly as they can and when they leave, housing will take a hit. Investors accounted for 19 percent of sales in the U.S. in March and even more in some former bubble markets, according to the National Association of Realtors.

“The problem is if they don’t earn a high enough return, they all walk away,” Vitner said. “Investors accounted for a larger proportion of the housing recovery than people realize.”

While the tightness in the existing-home market is driving up sales for new homes, homebuilders can’t increase production fast enough because of labor shortages and rising competition for lots in the best locations. There were 153,000 new homes available for purchase in March, just 10,000 more than a five- decade low in mid-2012.

Not Done

In Menlo Park, builders are selling houses long before they’re completed, said Keri Nicholas, a Realtor with Coldwell Banker in the affluent Silicon Valley town. Land is in such short supply that they’re buying million-dollar homes to knock down and put up mansions, she said.