According to Zillow’s third quarter real estate market report, home prices are up 6.4 percent year-over-year and up 1.2 percent from the end of the second quarter. While home prices are still escalating — and still need to return to pre-crash or even pre-bubble levels in many places — the pace at which they’re rising has slowed.

In the first quarter of the year, home values nationally rose one quarter of one percent (.25) percent, but then suddenly grew 2.4 percent in the second quarter. That pace of growth was halved this quarter and prices remained unchanged from August to September.

In other words, the water’s still hot, but it’s no longer boiling. And many housing market observers think that’s a good sign.

“Far from being a negative sign, we’re relieved to see more noticeable signs of cooling in the market,” Zillow chief economist Stan Humphries said in a release. “If home values continued to rise as they have, relatively unchecked, we would almost certainly be headed into another bubble cycle, and nobody wants that. This is more proof that the market recovery is entering a new phase, transitioning away from the bounce off the bottom we’ve been experiencing and finding a more sustainable level. This moderation should help consumers feel more at ease in their decisions to buy and sell, and will help keep the market balanced.”

The housing market cool down should be welcome news for some communities that were starting to see a new housing bubble form. Some areas of the country, most notably in California, that saw modest declines during the crash but still robust gains during the recovery were threatening to become unaffordable to anyone but the wealthiest buyers.

And the recession taught everyone a valuable lesson: Where there’s a bubble, a burst isn’t far behind.

Of the largest 30 metro areas that Zillow tracks, half showed depreciation, while the other half showed appreciation or remained flat.

At the end of the third quarter, the national pace of monthly home value appreciation has fallen in each of the past three months, and was negative in New York City (-.2 percent), San Diego (-1.2 percent), Los Angeles (-1.1 percent) and San Francisco (-0.1 percent) and Seattle (-.1 percent).

That doesn’t mean, of course, that these home prices are close to falling. In San Francisco, home prices are up 25 percent year-over-year and similarly up around 20 percent year-over-year for Los Angeles and San Diego.

San Jose, which has also seen incredible leaps in home prices over the past year and has a median home price of nearly a quarter-million dollars, still saw some modest gains over the past three months of .3 percent.

Las Vegas, which saw home prices decline nearly 60 percent during the depths of the housing crisis, is still home prices rise at the highest rate nationally, at 2.9 percent.