Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006 as stronger demand boosted values.

The S&P/Case-Shiller index of property prices in 20 cities increased 12.8 percent from August 2012, more than forecast, after a 12.3 percent gain in the year ended in July, a report from the group showed today in New York. The median projection of 28 economists surveyed by Bloomberg called for a 12.5 percent advance.

Tight inventories have boosted prices as buyers compete for a limited number of properties for sale. While housing continues to be a source of strength for the economy, higher mortgage rates and limited improvement in the labor market and wages risk slowing the pace of progress.

“There’s still decent enough demand with little supply so home prices continue to perform,” Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “It’s unclear how much rising mortgage rates in the last few months slow housing sales in the near future.”[share_this_post]

As of August, average home prices in the U.S. were back to their mid-2004 levels, and the 20-city index was up 22.7 percent from its March 2012 low