US home prices rose 12.8% in August versus the same month last year, according to just-released S&P/Case-Shiller Index data. That’s the highest year-on-year gain since 2006. Prices have been on a tear over the last year as super-low mortgage rates engineered by the Federal Reserve added much-needed oomph to the market. August prices were up a tidy 0.9% over July levels.
The strength in housing prices has been driven to a large extent by big investors taking advantage of low interest rates to buy rental properties. (It’s a smart move. While an investor might be able to lock in low interest rates for an extended period, rents paid by tenants tend to move higher each year.) Investor interest in some of the areas hit hardest by the housing bust—places like Phoenix and Las Vegas—has generated some of the sharpest rebounds. Prices in those two cities are up 19% and 29%, respectively, over the last year.