The average rate for a 30-year loan ended the week yesterday at 3.63 percent, a six-month high, after stronger- than-expected employment growth drove up yields for the government securities that guide home loans. While that’s up from the record low of 3.31 percent in November, it’s down from 6.8 percent in July 2006, according to McLean, Virginia-based Freddie Mac.

Low interest rates, a tight inventory of properties for sale and record affordability are fueling accelerated home price gains, Michelle Meyer, a Bank of America U.S. economist, and Chris Flanagan and Justin Borst, mortgage-backed securities strategists, said in a March 7 note.

“We believe a positive feedback loop has begun, where the rise in home prices fuels expectations of further appreciation and easing credit conditions, which in turn stimulates homebuying,” they said. “It is a powerful positive relationship especially in this environment of historically low interest rates and a Federal Reserve determined to keep policy accommodative.”

Gains will moderate to 6.5 percent in 2014 -- revised from a previous estimate of a 7.7 percent increase -- and 3.7 percent in 2015, the analysts wrote.

Seriously Delinquent

One issue that’s propelled prices has been shrinking supply from foreclosed homes. In 2012, 1.3 million liquidations occurred, about 30 percent less than the bank expected, in part because of loan modifications that let distressed borrowers stay in their houses.

Foreclosures plunged 29 percent last month from a year earlier to the lowest level since 2007 amid increased efforts by state lawmakers and courts to delay property seizures, according to RealtyTrac.

JPMorgan estimates that by the end of the year, 10 percent of borrowers will be underwater, or owe more on their mortgages than the home is worth, compared with 25 percent two years ago. As distressed sales continue to decline and the inventory of homes remains tight, demand for non-performing assets will probably increase, according to the report.

Further Rally

“If home price performance this year and the ensuing years is anything close to these predictions we’ll see a further rally in non-agency residential mortgage-backed securities,” Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc., said in an interview.