The median value rose to $153,800 from $151,800 in the previous three months on a seasonally adjusted basis, the Seattle-based property-data company said in a report. It was the biggest increase in Zillow's Home Value Index since the first quarter of 2006, when values rose 1.5 percent.
Home prices are rising nationally as the U.S. unemployment rate declines and buyers compete for a tightening supply of homes listed for sale. Still, values fell from the second quarter in 52 percent of markets covered by the index as the traditional homebuying season ended, according to Zillow Chief Economist Stan Humphries.
"The housing market is on the mend, but the housing bottom will be a protracted one," he said in a telephone interview. "We will see more muted appreciation in the near term before we get back to normal appreciation trends."
In Phoenix, where investor demand is helping to boost prices, home values rose the most of the 30 largest U.S. metropolitan areas, with a 5.9 percent increase from the second quarter, according to Zillow. They climbed 3.9 percent in Las Vegas and 3.8 percent in Denver, Zillow said.
Atlanta had the biggest drop in values, falling 2.2 percent from the previous three months, the data show. New York, Philadelphia, St. Louis and Cleveland were among other large metro areas where values declined.
The recovery is uneven across the country because of local variations in foreclosure conditions and employment, Humphries said. Growing demand from investors and foreign buyers is helping to push up values in pockets that were hard-hit by the housing crash, he said.
"The local story for each metro is beginning to reassert itself," Humphries said.
Zillow showed a drop in values for 17 of the 41 states it covers. Of the nine states considered presidential election battlegrounds, New Hampshire, North Carolina, Ohio, Virginia and Wisconsin had quarter-over-quarter declines, indicating that housing will be a key issue for many voters, the company said.
Values nationwide will increase 1.7 percent over the next year, according to Zillow's projection. Of the 253 markets tracked by the forecast, 183 areas have hit bottom and another 41 will reach a floor in the next year, the company said.
Zillow measures the value of 100 million U.S. homes, regardless of whether they sold during the quarter, and calculates the median for its index. Other gauges, such as the S&P/Case-Shiller index, track purchase prices.