Home prices jumped more than 2% between May and July, the largest two-month gain on record, as Americans emerging from COVID-19 lockdowns bought real estate, the Federal Housing Finance Agency said in a Wednesday report.
Gains in prices were driven by mortgage rates that started tumbling to record lows after the Federal Reserve began a bond-buying program in March to prevent a credit freeze amid the pandemic-induced recession. The Fed has spent about $1 trillion in the last six months buying mortgage-backed securities, which caused rates to fall to new record lows nine times.
“The dramatic increase in prices this summer can be attributed to the historically low interest rate environment and rebounding housing demand even as the supply of homes for sale remains constrained,” Lynn Fisher, an FHFA deputy director, said in the report.
Measured from a year ago, U.S. home prices in July jumped 6.5%, the FHFA said. The biggest gains were in the Mountain region, that includes Colorado and Utah, and in the East South Central region, including Tennessee and Kentucky. Both were up 7.7% from July 2019.
New England, including Massachusetts and Connecticut, was up 7%, and the South Atlantic region, including Florida and Georgia, was up 6.8%.
The average U.S. mortgage rate for a 30-year fixed mortgage was 2.87% last week, the second-lowest level on record, after rising one basis point from the prior week’s all-time low of 2.86%, Freddie Mac said on Thursday.
The rate has been below 3% for the last eight weeks, a level that a year ago was inconceivable even to the closest watchers of the mortgage market.
Low mortgage rates make it possible for more buyers to qualify for loans because cheaper interest rates shrink monthly mortgage bills. Cheap financing also supports price growth because buyers typically qualify for bigger mortgages.
The FHFA index is calculated using prices for single-family homes bought with mortgages backed by Fannie Mae and Freddie Mac. Because of this, it excludes cash transactions and sales of high-end homes bought with jumbo loans.