Home Prices Close Out 2012 With a Bang

Strong property value gains in December suggest the housing market continues to build momentum.

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Home prices closed out 2012 with solid gains, according to a prominent industry report released Tuesday, cementing the notion that a once-feeble housing recovery continues to gain momentum.

Property values increased 6.8 percent from December 2011, according to the S&P/Case-Shiller Home Price Index, the most substantial year-over-year gain since July 2006. December's 20-city index comes on top of a more than 5 percent gain year over year in November.

"Even when compared to a weak end to 2011, the undeniably strong final few months of 2012 helped to cement the housing recovery and build momentum for another positive year in 2013," Zillow Chief Economist Stan Humphries wrote in an E-mail.

[RELATED: 90 Percent of U.S. Cities Post Home Price Gains]

"While we do expect some moderation in home value appreciation this year, we believe that the housing recovery is on a stable footing, fueled by strong fundamentals of high affordability and increasing household formation."

Zillow, an online real estate information site, forecasts home values to rise more than 3 percent through December 2013.

Near-historic low mortgage rates coupled with a strengthening labor market continues to drive housing demand experts say, helping push home prices upward as the inventory of homes for sale dwindles and the flow of foreclosures slows.

[READ: Housing Recovery Bailed Out 1.4 Million Underwater Homeowners in 2012]

"The sustained housing price increases speak to the influence of investor money in reducing inventory and triggering previously reluctant home buyers to act before prices rise beyond their affordability," Luis Vergara, managing director of New York-based Mission Capital Advisors, wrote in an E-mail.

While rising prices are pushing more than a few hesitant buyers off the fence, property value gains could also spur more sellers to put their homes on the market, helping to ease inventory issues in some markets, Vergara adds.

Negative equity—when a homeowner owes more on his mortgage than his house is worth—has prevented many would-be sellers from listing their homes. But as home prices have continuously risen, millions of homeowners have also risen above the red.

Rising home prices "will help increase supply and begin to set the stage for a healthier overall housing market and encourage more new construction," Vergara says.

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