Home prices rose in May by the most in more than seven years as the recovery in U.S. residential real estate gained momentum, a report Tuesday said.

The S&P/Case-Shiller index of property values climbed 12.2 percent from May 2012, the biggest 12-month gain since March 2006, after advancing 12.1 percent a month earlier, a report showed Tuesday. The median projection of 31 economists surveyed by Bloomberg called for a 12.4 percent advance.

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All 20 cities in the index showed an increase in year-over-year prices, led by gains of 24.5 percent in San Francisco and 23.3 percent in Las Vegas. New York showed the smallest gain at 3.3 percent.

Property values in Dallas and Denver reached records in May, the first time any city had surpassed its precession peak, the report said.

Historically low borrowing costs, short supply and improving job market are boosting demand for residential property and driving prices up. The climb in home values is also bolstering household finances, which may spur consumer spending, the largest part of the U.S. economy.

"We continue to look forward to upward momentum" in the housing market, said Anika Khan, a senior economist at Wells Fargo Securities in Charlotte, N.C, a subsidiary of the largest U.S. mortgage lender. "We still have historically low inventory levels."

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Survey results

Bloomberg survey estimates ranged from increases of 10 percent to 13 percent. The S&P/Case-Shiller index is based on a three-month average, which means the May data were influenced by transactions in March and April. April's reading for the year- to-year gain was unrevised.

Home prices adjusted for seasonal variations rose 1 percent in May from the prior month, compared with a 1.7 gain in April. The Bloomberg survey median called for a 1.4 percent advance.

The year-over-year gauge, which includes records going back to 2001, provides a better indication of price trends, the group has said.

Market shifts

"The overall report points to some shifts among various markets: Washington D.C. is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts," David Blitzer, chairman of the S&P index committee, said in a statement.

The Case-Shiller index coincides with other reports this month that signal continued strength and price appreciation in the housing market.

Sales of previously owned homes sales fell unexpectedly in June, to a 5.08 million annualized rate, the second strongest since November 2009, according to the National Association of Realtors. The median price climbed 13.5 percent, the seventh consecutive month that property values advanced more than 10 percent year over year.

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The median selling price of a new home appreciated 7.4 percent in June to $249,700 from $232,600 a year earlier, figures from the Commerce Department showed last week.

That may be one reason why builders are gaining confidence. The National Association of Home Builders/Wells Fargo sentiment index climbed in July to the highest since January 2006. The gauge has jumped 13 points in the latest two months, the biggest back-to-back advance since January-February 1992.