One of the most closely watched monitors of the U.S. housing market shows home prices in America's 20 largest cities increased at the fastest annual pace since 2006.

The S&P/Case-Shiller home price index of the 20 biggest U.S. housing markets came in at 146.57 in February. That's an increase of 9.3 per cent compared to where it was the same month a year earlier.

That annual pace of gain is the fastest since May 2006. On a monthly basis, prices increased by 0.3 per cent — the largest monthly gain since October 2005.

In absolute terms, "the measure has now increased in 13 consecutive months and sits at its highest level since December 2008," Royal Bank economist David Onyett-Jeffries said in a research note.

The Case-Shiller index tracks home prices in relative terms by comparing them to where they were when the 20-city index was founded in January 2000. In those terms, home prices in America's big cities have increased by almost 47 per cent over the past 13 years.

Roughly half of all U.S. homes are included in the 20-city index.

Phoenix led all cities with an annual gain of 23 per cent in February. Prices jumped nearly 19 per cent in San Francisco. In Las Vegas, home prices increased 17.6 per cent and in Atlanta they rose 16.5 per cent.

Real estate is a closely watched indicator of the health of America's economy. It was tumult in the housing market that first moved the U.S., and then the rest of the developed world, into recession in 2008. A rebound in America's moribund housing market would be encouraging.

But with lending rates being so low, any rebound is just as likely to be based on demand caused by cheap credit than any true increase in demand, or a sign the economy is back on solid footing.

Indeed, there's evidence that the only reason prices are increasing is because the supply of homes for sale is so low. 

The number of homes available for sale has fallen nearly 17 per cent in the past year to 1.93 million, the National Real Estate Association said last week. At the current sales pace, that supply would be exhausted in 4.7 months, below the six months that is typical in healthier markets.

"This report needs to start being taken with a grain of salt," said Stan Humphries, the chief economist for real estate firm Zillow. "The appreciation rates we're currently seeing ... are not broadly reflective of what's happening in the national housing market right now."

And it's still very cheap to finance homes. The average 30-year mortgage rate sits at 3.4 per cent, only slightly higher than the all-time low seen last year.