WASHINGTON -- Home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, a sign the housing-market recovery is strengthening.

Near record-low borrowing costs and gains in employment are fueling demand and boosting property values as the number of houses on the market drops and foreclosures ease. The improvement is shoring up household net worth and confidence, which may underpin consumer spending even as an increase in the payroll tax reduces take-home pay.

The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006, after advancing 5.4 percent in November, a report showed Tuesday in New York. The median projection of 30 economists surveyed by Bloomberg called for a 6.6 percent advance. Nineteen of 20 cities showed gains.

"Last year was clearly a year of improvement, but there's still a long way to go," Ryan Wang, an economist at HSBC Securities USA in New York, said before the report. Wang is the third-best forecaster of the Case-Shiller index for the past two years,

according to data compiled by Bloomberg. "Home buyers are no longer as fearful that prices are going down, and that's translated into some more confidence."

Another report showed residential property values climbed 0.6 percent in December from the prior month, according to data from the Federal Housing Finance Agency. They were up 5.5 percent in the fourth quarter from the same time a year earlier.

Bloomberg survey estimates ranged from increases of 6 percent to 7.6 percent. The S&P/Case-Shiller index is based on a three-month average, which means the December data were influenced by transactions in November and October.

The November reading was revised from a previously reported 5.5 percent gain.

Tuesday's report also included quarterly national figures. Prices covering all of the U.S. increased 7.3 percent in the fourth quarter from the same period in 2011, the most since the second quarter of 2006 and compared with a 3.6 percent gain in the year ended September. They fell 0.3 percent from the previous three months before seasonal adjustment. The gauge climbed 2 percent after taking those changes into account.

Home prices adjusted for seasonal variations in the 20-city index climbed 0.9 percent in December from the prior month, compared with a 0.7 gain in November. The December advance exceeded the Bloomberg survey median that called for a 0.7 percent gain.

The month-over-month gain was led by Las Vegas and Los Angeles. All 20 cities showed increases.

Unadjusted prices in the 20 cities climbed 0.2 percent in December from the previous month.

The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index. Year-over-year records began in 2001.

Phoenix led the group of 19 cities that showed year-over- year increases, with a 23 percent jump in the 12 months to December. San Francisco was second with a 14.4 percent gain.

Atlanta and Detroit posted their biggest year-over-year gains in data going back to 1991, according to the report. Dallas, Denver and Minneapolis showed their biggest advances since 2001.

Only houses in New York lost value, dropping 0.5 percent over the 12-month period.

"Home prices ended 2012 with solid gains," David Blitzer, chairman of the S&P index committee, said in a statement. "These movements, combined with other housing data, suggest that while housing is on the upswing some of the strongest numbers may have already been seen."

Purchases of previously-owned homes rose in January even as depleted inventories restrained further improvement, the National Association of Realtors reported last week. About 4.66 million existing houses were sold last year, the most since 2007, according to the group's data.

Affordable borrowing costs are attracting buyers with adequate credit. The average rate on a 30-year fixed mortgage was at 3.56 percent in the week ended Feb. 21, close to the 3.31 percent in November that was the lowest in data going back to 1972, according to McLean, Va.-based Freddie Mac.

Further housing improvement may depend on stronger gains in employment. Employers added 157,000 workers to payrolls in January after a revised 196,000 rise the prior month and a 247,000 surge in November, Labor Department data showed Feb. 1. Revisions added a total of 127,000 jobs in the last two months of 2012.