(Bloomberg News) U.S. house prices jumped 1.8% in the second quarter from the previous three months, fueled by record-low mortgage rates and tight inventory, according to the Federal Housing Finance Agency.

The seasonally adjusted increase was the biggest since the fourth quarter of 2005, the FHFA said in a statement today from Washington. Prices climbed 3% from a year earlier.

Job gains, low borrowing costs and a low supply of homes for sale are providing a foundation for price gains. The number of U.S. homeowners who owed more than their houses were worth fell by about 400,000 in the second quarter, according to a report today by Zillow Inc.

"Although some housing markets are still facing significant challenges, house prices were quite strong in most areas in the second quarter," Andrew Leventis, FHFA principal economist, said in the statement. "The strong appreciation may partially reflect fewer homes sold in distress, but declining mortgage rates and a modest supply of homes available for sale likely account for most of the price increase."

Purchases of previously owned homes climbed 2.3% to a 4.47 million annual rate in July, up from an eight-month low, the National Association of Realtors said yesterday. At that pace, it would take 6.4 months to sell all the existing properties on the market, compared with 6.5 months at the end of June, the group said.

House prices in June increased 0.7% from May, the FHFA said. The average estimate of 13 economists in a Bloomberg survey was for a 0.6% gain.