Home Prices Climb In December, Best Yearly Gain Since 2006...

February 26, 2013 9:30 AM ET

NEW YORK (Reuters) - U.S. home prices picked up in December, closing out 2012 with the biggest yearly gain in more than six years as the housing market got back on its feet, a closely watched survey showed on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.9 percent in December on a seasonally adjusted basis, topping expectations for a gain of 0.5 percent.

Prices in the 20 cities jumped 6.8 percent year-over-year, ahead of expectations for 6.6 percent and the best yearly gain since July 2006.

"I expect the home price rise to persist in 2013," said Michelle Meyer, senior economist at Bank Of America Merrill Lynch in New York.

For the final quarter of the year, prices gained 2 percent on a seasonally adjusted basis. On a non-adjusted basis, prices were up 0.2 percent in December.

Last year housing contributed to economic growth for the first time since 2005 as the sector began to recover from its far-reaching collapse. Still, the market is far from fully healed, with over 20 percent of mortgages underwater and foreclosure rates still elevated.

Prices have been rising since last February as the supply of available homes for sale tightened in 2012, helping to stabilize home values. Investors buying cheap homes to be converted into rentals also supported the market and some hard-hit areas saw a sharp bounce back in prices. Phoenix, for example, saw gains of 23 percent compared to December 2011.

"While the economy faces challenges from the fiscal cuts, the housing market is on a good footing due to low inventory, slow clearing of foreclosure, steady household formation and more easing of mortgage credits," said Meyer.

Atlanta and Detroit racked up their biggest yearly increases since 1991, when they were first tracked. Prices in the cities climbed 9.9 percent and 13.6 percent, respectively. New York was the only region to decline on a yearly basis, down 0.5 percent.

U.S. stock index futures saw little reaction to the data, with Wall Street set for a higher open, while the dollar extended losses against the euro.

(Reporting by Leah Schnurr, additional reporting by Richard Leong; Editing by Chizu Nomiyama)