The housing recovery narrative got a boost today from the Case-Shiller price index, which went positive year-over-year for the first time since a first-time homebuyer’s tax credit goosed the numbers in 2010. So really, this is the first year-over-year increase since the housing bubble collapsed in 2007 2006. And the usual suspects are ecstatic.

Brad DeLong inconveniently points out that home prices are still down 0.8% year-over-year if you look at real dollars. Spoilsport!

I prefer to look at this a bit differently. Focusing on housing prices without the context of how housing prices are being pushed upward, and what that means for our housing architecture, is important to note. First of all, banks are keeping inventory deliberately off the market to restrict supply. Some may say that those distressed properties will never return to the market at all, but that’s not exactly a good thing. It means that we’ll see more situations like this:

Los Angeles has sued U.S. Bancorp (USB.N), accusing a unit of the fifth-largest U.S. commercial bank of becoming one of the city’s biggest slumlords and blighting the city by allowing hundreds of foreclosed homes to fall into disrepair.

Monday’s civil lawsuit by the office of Los Angeles City Attorney Carmen Trutanich alleges that U.S. Bank NA has taken title to more than 1,500 foreclosed residential properties in the city in its role as trustee for various mortgage-backed securities trusts.

“This lawsuit is a deterrent. It’s a message to other banks; step up and do the right thing,” Trutanich told reporters on Tuesday on the steps of Los Angeles City Hall.

If you think that the positive of housing prices raising a bit outweighs the negative of hundreds of thousands of blighted homes dotting the US landscape, fine. But make that explicit. Point out that you don’t think shadow inventory will be a factor because you think a bunch of dilapidated homes will just sit their uninhabited. And let me know what people think about that circumstance, particularly local governments, who will inevitably have to pay the price.

The other factor leading to the constriction of supply is the rapid purchase of foreclosed and distressed properties by investors, for conversion to rental units. One analyst relayed to me that the percentage of home sales going to investors has now gone above the bubble years. You can anecdotally feel this with the return of “Flip My House”-type programming on TV. There are plenty of pitfalls for this type of activity, especially if we see a large issuance of rental revenue-backed securities on the market. But more than that, this could lead to a generation of absentee slumlords, redevelopment of depressed areas in ways that price out current residents, and a bubble in these REO-to-rental acquisitions that could be vulnerable to crash.

The associated reason for low supply is the continued presence of 16 million underwater homes, which cannot be sold unless the bank agrees to a short sale. This of course increases the potential foreclosure risk.

In other words, the forces underlying the comeback in housing prices aren’t at all stable. They don’t suggest a healthy housing market. They suggest artificial factors making up for the problems with the fundamentals of the industry. Maybe this is enough to raise prices and return some equity to borrowers and lead a recovery on its own. But it’s at least worth giving the full picture before getting excited about a price rise.