Home prices showed strong annual gains for the 12 months ending October 2012, the Obama Administration said in its December Housing Scorecard report.

“As the December housing scorecard indicates, our housing market is continuing to show important signs of recovery — with the FHFA and Case-Shiller housing price indices up 5.6% and 4.3%, respectively, from one year ago,” said the U.S. Department of Housing and Urban Development Senior Advisor on Housing Finance Michael Berman.

Housing inventory continued to drop overall, falling to 4.8 months’ supply from 5.3 months’ supply on the last scorecard.

This drop in inventory, coupled with strong demand, is a driving force behind price appreciation. Home sales are up, hitting 31,400 existing homes for sale compared to 30,100 homes last month.

The December scorecard also revealed a significant drop in foreclosures, with starts only reaching 77,500 in November, down from 89,200 starts the previous month.

"The Administration's programs to prevent foreclosure have helped millions of families stay in their homes and prompted critical changes in the way the mortgage industry assists struggling homeowners, which have helped our country recover faster from an unprecedented housing crisis," said Treasury Assistant Secretary for Financial Stability Tim Massad.

A key indicator that, while still fragile, the housing recovery is very much happening is the number of underwater borrowers. The first quarter in 2012 accounted for 11.4 million underwater borrowers, while the second quarter only revealed 10.8 million.