Home prices continued to gain steam in May according to a closely-watched reading, even as mortgage rates climbed.
The S&P/Case-Shiller home price index was up 12.2% compared to a year ago, slightly better than the 12.1% rise in April. It was the biggest year-over-year jump in prices since March 2006, near the peak of the housing bubble.
Prices in two cities – Dallas and Denver – hit record highs, topping even the peaks they reached during the housing bubble.
However, the national index, which measures prices in the 20 largest markets, is still 24.4% below the peak of June 2006.
Just a year ago, the index posted a 12-month decline in prices. Sellers had been struggling while their homes languished on the market for months, or even years. But prices have increased every month since June 2012, and each month the increase has been greater than the month before.
The gain in home prices has now made this a good time to sell a home. Many sellers are finding themselves in the midst of bidding wars, with buyers eager to make a purchase in a market with a tight supply of houses available for sale. House hunters are also eager to lock in a mortgage while rates are still low, at least by historic standards.
The record low mortgage rates of earlier this year have risen significantly, crimping the purchasing power of potential home buyers. But climbing rates have yet to slow the rapid increase in home prices.
Additionally, prices are being boosted by a sharp drop in foreclosures, which had been holding prices down.