Momentum continued to grow in a snowball effect manner, with prices rising to a two-year high in December, according to the latest FNC report.

Battling a deceleration in economic growth, the housing recovery maintained a steady pace, shooting FNC’s residential price index up 5.4% year to date.

The recovery of the underlying property values is strongly influenced by a stabilizing foreclosure market. While many markets that were hardest hit still face challenges, there are signs that foreclosure prices have bottomed out.

As a percentage of total home sales, foreclosures were 17.8% in December, down from 24.0% a year ago.

The FNC 100-MSA, which is based on recorded sales of non-distressed properties in the 100 largest metropolitan areas, revealed that December home prices remained relatively unchanged from the month before, but still rose 4.9% on a year-over-year basis.

The 30-MSA and 10-MSA composite indices paralleled the 100-MSA momentum, relatively unchanged from November and up 5.8% from December 2011.

Click on the image below to see the monthly index trends.

The housing markets varied widely throughout the country. Baltimore, Chicago, Houston and San Antonio fell relatively flat over the last 12 months. Conversely, Phoenix and Denver saw double-digit growth. Chicago continues to underperform other major markets that make up the FNC 30-MSA index.

Real estate broker Redfin also released its real-time home price tracker Friday, revealing that sales volume fell by 20% from December, but were up 12% from overall 2012 levels — the strongest January in four years. Phoenix led the price tracker, with a 31% increase in home prices year-over-year.

Inventory continues to shrink as buyer demand grows, with the top seven markets showing the largest drop in inventory all in California: Sacramento (70% decrease), San Francisco (63.7% decrease), San Jose (61.2% decrease), Ventura (60.3% decrease), Los Angeles (57.3% decrease), Inland Empire (54.7%) and San Diego (52.4% decrease).

Because the inventory is so small, homes are being snagged off the market quickly. The top five fastest-selling markets were also all in California: San Jose, San Francisco, Ventura, Los Angeles, Inland Empire and San Diego.