Residential real estate prices increased in January by the most since June 2006, indicating the U.S. housing market strengthened at the start of the year.

The S&P/Case-Shiller index of property values in 20 cities climbed 8.1 percent in January from the same month in 2012 after rising 6.8 percent in the year ended in December, the group said today in New York. The increase exceeded the 7.9 percent median forecast by economists in a Bloomberg survey.

Improving home values will lure more buyers into the real estate market by inducing current owners to put their properties up for sale and prompting builders to begin work on new dwellings. Historically low lending rates and a stronger labor market have helped fueled the rebound in housing, which is a source of strength for the economy.

“The housing market is looking pretty positive,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. Sloan was the best forecaster of homebuilding in the past two years, according to data compiled by Bloomberg. “Recently the pickup in demand has been so strong that it’s gone ahead of supply, and that’s made prices firm. People see house prices rising and think it might be a good time to buy.”

Estimates for the year-over-year price change ranged from increases of 6 percent to 8.9 percent, according to forecasts from the 30 economists surveyed. The Case-Shiller index is based on a three-month average, which means the January figure was influenced by transactions in December and November.

Home prices adjusted for seasonal variations rose 1 percent in January from the prior month after a 0.9 percent gain in December. Phoenix and San Francisco showed the biggest adjusted monthly increases, with prices climbing 1.9 percent in both metropolitan areas. Atlanta posted a 1.8 percent gain, while values advanced 1.7 percent in both Las Vegas and Tampa, Florida.

Unadjusted Gain

Unadjusted prices advanced 0.1 percent in January from the previous month as nine of 20 cities showed an increase.

The year-over-year gauge provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.

All 20 cities in the index showed a year-over-year increase, led by a 23.2 percent surge in Phoenix. The change in home prices in New York, up 0.6 percent, turned positive after declining during the previous 28 months.