Home prices edged up in December, the seventh straight monthly gain and another sign the U.S. housing market continues its bumpy recovery.
The trend is important to the nation's economic recovery. For most Americans, their home is their largest asset, so as values climb homeowners feel wealthier and more comfortable spending. And, for homeowners who currently owe more on their mortgages than their properties are worth, rising prices will rebuild equity.
The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off about 3 percent from December last year, nearly matching analysts' estimates.
The index is now up more than 3 percent from its bottom in May, but still 30 percent below its May 2006 peak.
Home sales data for January, out later this week, are also expected to show gains over year-end levels as buyers took advantage of low interest rates and temporary tax credits.
Anna Piretti, an economist at BNP Paribas, said the price increases are "further evidence that conditions in the house market continue to stabilize."
"While conditions remain challenging in Florida, house price conditions appear to be improving in the Western states, with gains recorded in California, Nevada and Arizona," Piretti wrote in a research report.
Only five of 20 cities in the index showed declines from November to December. Los Angeles and Phoenix posted the largest price increases. Prices dipped in key markets like Miami, New York and Chicago.
In Denver, prices rose for the 10th month in a row, while San Francisco saw its eighth monthly gain.
Buying activity in the San Francisco area is heaviest among homes priced $600,000 and below, said Doug Sager, an agent with ZIP Realty. More listings are receiving multiple offers above the asking price, with sellers preferring all-cash buyers to those who need financing.
"People are realizing the bottom is creeping away" in San Francisco, Sager said.
But there are still obstacles that could derail the recovery.
First, consumer confidence took a surprisingly sharp fall in February amid rising job worries, ending three straight months of improvement
Also, roughly 5 percent of homeowners with a mortgage are in foreclosure, the Mortgage Bankers Association reported last week. As those deeply discounted homes hit the market, they will keep pushing down prices.
And, some economists fear that demand and prices will fall after two federal tax credits expire in April.
"Prices have stabilized and are starting to rise, but forces that will bring them back down are growing," wrote Patrick Newport, an economist with IHS Global Insight.
Michelle Meyer, an economist with Barclay's Capital Research, said prices could fall about 5 percent from current levels.
"The most likely outcome is that it will take years to work through the glut of foreclosures, keeping home prices bouncing around the bottom for quite some time," Meyer wrote in a research report.
Nevertheless, prices have risen for three straight months in Charlotte, North Carolina, which did not see a big price bubble during the housing boom. The busiest price range is for homes under $350,000, said Lyn Kessie, president-elect of the Charlotte Regional Realtors Association.
"Homes are selling a little bit faster, if they are priced right," Kessie said. "If we can increase employment, that will help a lot."
The Case-Shiller indexes measure home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.