"The market was hungry for some good news, particularly on housing," said Fred Dickson, chief investment strategist with D.A. Davidson & Co. "After months of depressing housing data, today's report felt especially good."
The Dow Jones industrial average (INDU) added 145 points, or 1.2%, to close at 12,189; the S&P 500 (SPX) climbed 17 points, or 1.3%, to 1,297; and the Nasdaq Composite (COMP) was up 41 points, or 1.5%, to 2,729.
The S&P Case-Shiller home price index, considered one of the leading gauges on the housing market, rose 0.7% in April.
Dickson said that while April Case-Shiller numbers were solid, he doesn't believe the report indicates a housing market bottom.
"The report could be a momentary blip," he said.
Investors continue to follow overseas developments amid ongoing protests in Greece Tuesday, as Greek Prime Minister George Papandreou pushes for deep spending cuts and tax increases.
Greek lawmakers began debating an austerity package Monday, which is needed to secure financial aid for the struggling country. Discussions continued Tuesday, with Greece's parliament set to vote Wednesday on a five-year budget plan.
In another facet of Europe's debt crisis, the credit agency Moody's warned it may have to downgrade Spain's regional banks. The agency said regional governments remain too optimistic in their economic forecasts and are likely to see bigger-than-anticipated deficits.
Although jitters about Greece's debt crisis and the health of the eurozone still remain, markets could be overshadowed temporarily by optimism about the upcoming earnings season.
The dollar lost ground against the euro, British pound and the Japanese yen.
Oil for August delivery added $2.28 to $92.89 a barrel.
Gold futures for August delivery rose $3.80 to $1,500.20 an ounce.
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