Home prices are continuing to improve, further evidence of the housing market's growing health.

Prices in July rose 1.6% from June and 0.4% when adjusted for seasonal factors, according to the 20-city Standard & Poor's Case-Shiller index.

The increases have been broad as prices rose for the third consecutive month in all 20 cities.

Year over year, Case-Shiller's data show home prices up 1.2%. Phoenix led the way with a 17% jump. After Phoenix, the biggest year-over-year gainers were Minneapolis, up 6.4%; Detroit, up 6.2%; and Denver, up 5.4%. Atlanta remained the laggard, down almost 10% year over year.

"All in all, we are more optimistic about housing," says David Blitzer, chairman of the index committee at S&P/Dow-Jones Indices.

The Case-Shiller report follows other recent good news about housing. Existing home sales were up 8% in August from July, single-family home starts were also up, and foreclosures are slowing.

Consumers are more optimistic, too. The Conference Board said Tuesday its Consumer Confidence Index this month reached its highest level since February.

Further home price increases are likely as long as the U.S. avoids recession, says Patrick Newport, IHS Global Insight economist.

He calls the recent home price gains a "game changer" for the economy and says they'll help in "small and different ways."

One effect of rising home prices is they help homeowners build equity. In the first half of this year, 1.3 million homeowners moved from being underwater -- owing more on their mortgages than their homes were worth -- into positive equity status, says market researcher CoreLogic.

Fewer underwater homes will lead to fewer defaults and enable more people to refinance and take advantage of interest rates that are still near all-time lows. They averaged 3.55% for a 30-year fixed-rate loan for the week ended Sept. 13, Freddie Mac says.

Increased refinancing will leave more consumers with more money to spend, Newport says. Higher home prices will also help home builders because they'll have more room to raise prices. Higher home prices may also boost home sales by enabling more people to sell existing homes and move up to others, Newport adds.

Home price increases are likely to soften in the fall, as they typically do after the stronger spring and summer seasons, says Jed Kolko, economist for real estate website Trulia. But overall, Capital Economics expects home prices to rise 5% this year and a similar amount next year.

Prices are rising because of numerous factors, including:

Fewer distressed home sales. Distressed homes accounted for 22% of existing home sales in August, down from 31% the same time last year, the National Association of Realtors says. Distressed homes typically sell at a discount to others and affect neighboring home values.

Lower inventory. The number of homes for sale in August nationally was at a 6.1-month supply, down from an 8.2-month supply a year earlier, NAR says. In general, a six-month supply is considered a balanced market.

In some cities, especially in the West and in Florida, the inventory of homes for sale is far tighter. In Phoenix, the inventory of homes for sale in July was well below the 10-year-average, says the Cromford Report. There, home prices in July were up almost 17% from a year ago, Case-Shiller says.

USA Today