Home Prices Up, Best Yearly Increase Since 2006

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Single-family home prices rose in January, starting the year with the biggest annual increase in six-and-a-half years in a fresh sign the housing market recovery remains on track, a closely watched survey showed on Tuesday.

The S&P Case/Shiller Home Price Index of 20 metropolitan areas gained 1 percent month-on-month in January on a seasonally adjusted basis, topping expectations for 0.9 percent. Prices have been gaining since last February.

(Click here to track the U.S. stock market's reaction to the report.)

On a nonseasonally adjusted basis, prices rose 0.1 percent.

Prices in the 20 cities climbed 8.1 percent year-over-year, also beating expectations for 7.9 percent. It was the biggest yearly increase since June 2006, when housing prices were on their way down as the market was starting to collapse.

"I don't think we're in a zone where prices are rising too much," David Blitzer, chairman of the S&P 500 index committee, said on CNBC's "Squawk on the Street."

"We're seeing the U.S. economy after a long long wait, come back and really begin to grow a lot better," he said. "Down the road, it's quite possible that prices move up a little more than expected. A lot of people are renting because they are not sure where the market is going."

(Read More: American Dream Is Back, So Are Stocks: CNBC Survey)

Average home prices were back to their autumn 2003 levels, though that still leaves them down about 30 percent from the 2006 peak.

All of the 20 cities showed gains on a yearly basis, with New York rising for the first time in over two years. Phoenix continued the strong rebound seen last year, rising 23.2 percent from the year before.

Eight cities racked up double-digit gains, including San Francisco, up 17.5 percent, and Las Vegas, up 15.3 percent.

The housing market got back on its feet last year as prices rose, inventories tightened and sales improved. Stimulus efforts from theFederal Reserve are also keeping mortgage rates at historically low levels, which has helped spur demand.

That momentum carried into 2013 and data last week showed home resales hit a three-year high in February.