US home prices climb record 3.1% as low mortgage rates fuel housing-market boom
US home pricesgained a record 3.1% in the third quarter as historically low mortgage rates boosted demand through the summer, the Federal HousingFinance Agency said in a Tuesday report.
- Prices jumped 7.8% from their year-ago period. A seasonally adjusted index of prices rose 1.7% in September from the prior month.
- The Federal Reserve's lowering of interest rates in March has pushed mortgage rates to several record lows throughout the pandemic and fueled a housing boom.
- Robust demand and low borrowing costs "will remain important tailwinds" and signal the
housing market's strength will continue through the end of the year, Barclays economist Blerina Uruçi said.
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Prices gained 3.1% from their prior-quarter levels, according to the report. The jump also places prices 7.8% higher than their year-ago levels. A seasonally adjusted monthly index of prices gained 1.7% in September.
The Federal Reserve's decision to pull its benchmark interest rate close to zero in March sparked a steady decline in mortgage rates throughout the coronavirus pandemic. Borrowing rates notched several record lows, and constrained supply led prices to climb through the end of the summer. The housing market has served as a rare bright spot in the virus-stricken economy, and experts expect its momentum to continue through the end of the year.
"We believe that a combination of low mortgage interest rates and strong demand for housing will remain important tailwinds and expect residential investment to make another strong contribution to GDP growth in Q4 as a result," Barclays economist Blerina Uruçi said in a note.
Mortgage rates hit their thirteenth record-low of the year last week, according to Freddie Mac data published Thursday. The average 30-year fixed-rate mortgage rate fell to 2.72% from 2.84%.
The housing market's strength shows little signs of fading. The Fed has signaled it will hold interest rates near zero through 2024, ensuring mortgage rates will sit at low levels for the foreseeable future. The National Association of Home Builders/Wells Fargo Housing Market Index rose to a record-high 90 in November, signaling the rally can continue despite soaring COVID-19 cases.
Separately, housing starts rose 4.9% to a seasonally adjusted rate of 1.53 million, the highest since February. Economists expected starts to climb slightly to 1.46 September's revised reading of 1.459 million.
"We expect some moderation in the pace of housing starts in the face of the rapidly escalating health crisis, a faltering recovery, and softening labor market gains," Nancy Vanden Houten, lead US economist at Oxford Economics, said. "However, the risk in the near term may be for further upside surprises."
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