In September, home prices spiked 7% year over year.

According to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, home prices surged 7% annually in September, up from a 5.8% annual gain in August.

For perspective, this gain is the largest seen since September 2014. Moreover, home prices are now ruling 23% higher than their previous peak in 2006. The index represents data from the period of July to September, averaged. (CNBC)

Reasons for the price surge

Mortgage rates fell to another record low last week, for the 13th time this year, according to CNN.

The average interest rate on a 30-year fixed-rate mortgage dropped to 2.72%, according to Freddie Mac. That plumbed the lowest level in the nearly 50 years of survey records. The 15-year fixed-rate mortgage dropped to 2.28%.

These low rates have been a primary trigger for the current boom conditions in the U.S. housing market. However, rising home prices may soon outweigh the benefits of lower rates.

Another reason is the continuing crunch in the supply of housing, which remains limited. Inventory slumped to a mere 2.5 months of supply by the end of October said the National Association of Realtors.

This has been compounded by the skyrocketing demand for second homes as a result of the virus pandemic.

“The delayed spring homebuying season fueled sales well into October and past the time when they would normally begin to slow down,” said George Ratiu, senior economist at realtor.com to CNBC. “Heading into winter, demand continues to be strong, driven by mortgage rates which have broken record lows 13 times this year and a growing list of companies which have extended their remote work policies well into 2021.”

Home prices may remain elevated in case of an economic recovery and an effective and easily available vaccine against the virus.

Homebuilder ETFs likely to be in focus

• SPDR S&P Homebuilders ETF (NYSEARCA: XHB)
• iShares U.S. Home Construction ETF (BATS: ITB)
• Hoya Capital Housing ETF (NYSEARCA: HOMZ)

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