U.S. housing prices surged by at staggering 18.8% in 2021 and 18.4% in October from a year earlier, according to the S&P Core Logic Case-Shiller 20-city home price index. While down from the 19.1% year-over-year increase in September, the increase in prices is still high and was in line with economists' estimates.

Last year's 18.8% increase in the average price of a home in the United States was the most significant annual rise in 34 years.

November was the third straight month for sales of previously owned homes to rise, to a seasonally adjusted annual rate of 6.46 million.

Prices of homes in all 20 cities in the index increased by double digits. The No. 1 market was Phoenix, where prices rose 32.3%, followed by Tampa (28.1%) and Miami (25.7%).

Rock-Bottom Mortgages

Driving sales are rock-bottom mortgage interest rates, low inventory of homes on the market, American consumers looking to invest their money after a two-year-long pandemic and the anticipation of higher mortgage rates as the Federal Reserve begins its rate hikes.

In addition, the work-from-home protocol that started in the pandemic has enabled many people working in service industries to elect where they can live.

Mass migration to the South, Southwest and Mountain West drove most of the sales in 2021.

Mortgages currently average 3.05% for a 30-year loan, and 2.66% for a 15-year loan, fixed rate in both cases.

"The influx of new investment is pulling in new residents from the Northeast, many of whom have sold homes at prices well above the media in Tampa and Miami, which allows them to bid aggressively for the paucity of homes that are on the market," according to Wells Fargo Economist Mark Vitner.

Underpinnings of 2021 Boom

When the impact of the Federal Reserve's rate hikes takes effect on the banking system, says Craig J. Lazzaro, managing director at S&P Dow Jones Indices, it will result in higher mortgage interest rates -- which could cool the housing market.

Lazzaro added that economists need to study the impact of the economic shutdown of the pandemic and its resulting consumer demand for such things as housing, in order to understand the housing boom of 2021.