Home sales finished up last year on a high note, as the struggling housing market took longer strides toward a sustained recovery.

Sales of previously owned homes rose 5 percent in December to a seasonally adjusted annual rate of 4.61 million, the best showing since January 2011 and the third straight monthly increase, the National Association of Realtors reported Friday.

Yearly figures though reflect the long road ahead for the sector — sales rose only 1.7 percent to 4.26 million, up from 2010's dismal 4.19 million — still well below the 6 million that economists say means the housing market is back at healthy levels.

“The pattern of home sales in recent months demonstrates a market in recovery,” said Lawrence Yun, NAR's chief economist.

“Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”

Housing groups, including builders, have expressed a greater amount of confidence in the housing market's recovery, saying there is no place to go but up in sales, construction and prices. Builders note that there are pockets of positive changes throughout the country and expansion is spreading.

Sales were up around the country in December, increasing 10.7 percent in the Northeast, 8.3 percent in the Midwest, 2.9 percent in the South and 2.6 percent in the West.

The market has dragged through a prolonged downturn for about five years.

In a poll released Friday, homeowners were confident their home values will increase during the next few years and they will be worth more than what they still owe, the strongest response in a year.

About 21 percent of homeowners now believe their home will be worth more in a year, up 7 points from last month and the highest result measured since February 2011, according to the latest Rasmussen poll. Still, 27 percent say their home will be worth less in a year’s time, while 51 percent expect its value to remain about the same.

The housing market is sending out plenty of signals that it is moving forward, albeit slowly.

Mortgage rates have hit record lows, though that hasn't helped many who are underwater on their mortgages or can't get financing to make a purchase.

The average rate on 30-year fixed mortgages dipped to 3.88 percent this week, down from the previous record of 3.89 percent one week ago, Freddie Mac said Thursday.

The rate on a 15-year fixed mortgage was up a bit to 3.17 percent from 3.16 percent, which was also a record low. Records for mortgage rates date back to the 1950s.

Mortgage rates track closely with the yield on 10-year Treasury note, which fell below 1.9 percent this week.

The median sales price rose 2.3 percent to $164,500 in December, 2.5 percent below December 2010.

Distressed homes — foreclosures and short sales — accounted for 32 percent of sales in December (19 percent were foreclosures and 13 percent were short sales), up from 29 percent in November; they were 36 percent in December 2010.

In a healthy market, foreclosures usually represent about 10 percent of sales, but there is still a glut of distressed homes on the market.

Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents about a six-month supply at the current sales pace, down from about a seven-month supply in November — that is more in line with what economists say represents a better market.

Available inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.3 million homes on the market, according to the NAR.

“The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said.

Foreclosures sold for an average discount of 22 percent in December, up from 20 percent a year ago, while short sales closed 13 percent below market value compared with a 16 percent discount in December 2010.

First-time buyers fell to 31 percent of transactions in December from 35 percent in November; they were 33 percent in December 2010. That figure needs to be about 40 percent to represent a recovery.

All-cash sales accounted for 31 percent of purchases in December, up from 28 percent in November as investors accounted for the bulk of cash transactions.

Investors purchased 21 percent of homes in December, up from 19 percent in November.

Contract failures were reported by 33 percent of NAR members in December, unchanged from November. They were 9 percent in December 2010.

Although closed sales are holding up better than this finding would suggest, contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.

Single-family home sales increased 4.6 percent to a seasonally adjusted annual rate of 4.11 million in December from 3.93 million in November, and are 4.3 percent higher than the 3.94 million-unit pace a year ago.

Existing condominium and co-op sales rose 8.7 percent to a seasonally adjusted annual rate of 500,000 in December from 460,000 in November but are 2 percent below the 510,000-unit level in December 2010.