U.S. annual home price growth accelerated for a third straight month in August, underscoring the recovery of the housing market after a period of softening, data showed on Tuesday.

Home prices rose 5.6% on a year-over-year basis in August, up from a 4.6% increase in the prior month, the Federal Housing Finance Agency (FHFA) said.

The June reading had marked the first acceleration in annual house price growth since February 2022.

The report also showed prices rose moderately on a month-over-month basis, in line with the trend over the past quarter. Prices were up 0.6% in August, compared with a 0.8% month-over-month increase in July.

The Federal Reserve recently paused its interest rate hiking cycle after raising its policy rate from near zero in March 2022 to the 5.25%-5.50% range in July 2023. The U.S. central bank is expected to keep that rate on hold at its meeting this week.

But the cost of mortgage loans has continued to rise, with the rate on the most popular U.S. home loan now at its highest level since September 2000. That has discouraged owners from selling their homes, exacerbating an inventory shortage and helping to keep prices higher.

Annual house prices rose the most in the Middle Atlantic and New England regions in August, with gains of 8.6% and 8.4%, respectively, the FHFA data showed.

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)