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Single-family home prices rose at a slightly slower pace in July, but the year-on-year gain was the strongest in more than seven years, a closely watched survey showed on Tuesday.
The report suggested the housing sector continues to recover despite a recent rise in mortgage costs. Economists have pointed to a stronger housing market as a bright spot in the U.S. economic rebound.
The closely watched S&P/Case Shiller composite index of 20 metropolitan areas rose 0.6 percent on a seasonally adjusted basis, compared to economists' forecasts for a 0.8 percent gain. Prices rose 0.9 percent in June.
On a non-adjusted basis, prices rose 1.8 percent.
Compared to a year earlier, prices were up 12.4 percent, matching economists' expectations and marking the strongest rise since February 2006. Prices were up 12.1 percent in the year to June.
Prices in all 20 cities rose on a non-seasonally adjusted yearly basis, led by a 27.5 percent surge in Las Vegas and followed closely by a 24.8 percent gain in San Francisco.
Robert Shiller, one of the index's authors, said that Las Vegas figure gave him pause.
"I'm starting to worry about a bubble. In some cities it's looking bubbly now," Shiller told CNBC's "Squawk on the Street" Tuesday
"The really dramatic cities tend to be cities that had bubbles in the recent past - California, Phoenix, Vegas - It's regional somewhat. The northeast is relatively mild."
Shiller also cautioned the rally in prices could run out of steam soon.
"It might be slowing down, because the thing that's driving this doesn't seem to be excitement about a new era," he said. "It's a mixed picture and I don't know where home prices are going to go. This might be the beginning of a slowdown. It could be the beginning of a bubble."