The national median home price saw the strongest year-over-year increase in seven years as a growing number of metropolitan areas posted higher median values in the fourth quarter of 2012, the National Association of Realtors said.

Favorable affordability conditions, increasing rent rates, demand for housing and job creation are some of the drivers leading to solid home price performance, said chief economist Lawrence Yun at NAR.

"Home sales are on a sustained uptrend, mortgage interest rates are hovering near record lows and unsold inventory is at the lowest level in 12 years," he said. "Our population has been growing faster than overall housing stock, so supply and demand dynamics are very much at play."

The median existing single-family home price rose in 133 out of 152 metropolitan statistical areas (MSAs) based on closings in 4Q12, compared with the previous year. Additionally, 19 areas had prices drop, NAR said.

The national median existing single-family home price hit $178,900, up 10% from last year. This is the strongest year-over-year price increase since the fourth quarter of 2005, when the median price rose 13.6%.

A contracting market share of lower priced homes continues to account for price growth.

For instance, distressed homes accounted for 23% of fourth quarter sales, down 30% from the previous year, according to NAR.

Total existing-home sales, including condominiums and single-family homes, increased 5% to a seasonally adjusted annual rate of 4.9 million in 4Q12, compared to 4.66 from the previous quarter. Additionally, existing-home sales were 12.1% above the 4.37 million pace during the same quarter of last year, the report noted.

Additionally, there were 1.82 million existing homes available for sale at the end of the fourth quarter, down 21.6% from a year earlier. Unsold inventory is at the lowest level since Jan. 2001, NAR said.

"In reality, home prices overcorrected on the downside and homes in most of the country were selling for less than replacement construction costs, which means they were undervalued," said President Gary Thomas of NAR.

He added, "At the same time we've had record low mortgage interest rates and slow but steady improvements in median family income.  Combined, these factors boosted housing affordability conditions to the highest on record in 2012."

Regionally, all existing home sales improved, with the most expansion in the West, increasing 5.9%. This region is most impacted by limited housing supplies, NAR noted.

Similarly, existing-home sales in the Northeast increased 2.2%, the Midwest also rose 5.6% and the South grew 5% in 4Q12.

NAR’s national annual Housing Affordability Index, which breakouts for metro areas, soared to a record high 193.5 in 2012 from 186.4 in 2011.

The index is calculated on the relationship between median home price, median-family income and average effective mortgage interest rate. 

Metro areas with the greatest housing affordability conditions included the Detroit-Warren-Livonia, Mich., with an index of 571.1 and Lansing-East Lansing, Mich., at 397, according to NAR.

Even with rising home prices, conditions are expected to remain favorable with the index averaging 161 in 2013, Yun said.

He added, "The housing affordability index shows that the national median income of families was almost double the income needed to buy a median-priced home in 2012, so most buyers are able to stay well within their means."