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Home prices less dismal, but still falling steeply

They had been dropping at record levels for several months, but a new report says the decline eased slightly in February.

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Currently, the number of for-sale homes nationwide represents a 10-month supply for buyers, according to the National Association of Realtors. For the market to come into balance, many economists expect that the inventory level will need to fall sharply, perhaps to about a six-month supply.

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Phoenix has seen its home values fall more than any other city in the Case-Shiller tallies. As of February, prices there are down 51 percent from the 2006 peak. Dallas has seen the smallest decline: 11 percent.

Even with the declines, almost all the 20 cities have home values that are above where they were in January 2000. In most cases, the increase since then is substantial – 4 percent annualized gains on average.

So far, New York tops the list of cities where prices rose high during this decade and have retained much of that gain. Prices in the Big Apple are 79 percent above where they began the decade. Prices in Washington, D.C., are up 68 percent

Not all the hard-hit cities are Sun Belt boomtowns. Cleveland and Detroit never saw a housing bubble, so now average prices are below where they stood in January 2000. In Detroit, capital of the struggling automotive industry, the drop has been steep – a 25 percent decline in prices during the decade. The decline would be even more severe if adjusted for inflation.

Several forces could help to stabilize the housing market in coming months.

One would be if the pace of layoffs declines, as many economists expect. In a survey released Tuesday by the Conference Board, consumer confidence rose sharply, in part because of declining pessimism about the job market. The consumer confidence index rose to a level of to 39.2, up from a revised 26.9 in March. That was a much stronger gain than expected.

Another boost could come from federal housing policy. The Obama administration is trying to contain the wave of foreclosures by helping more homeowners refinance their loans at affordable rates.

On Tuesday, the Obama administration announced an expansion of its housing plan, with incentives for mortgage lenders to refinance the second mortgage (as well as the primary mortgage) that many at-risk borrowers have.

Often during the boom, people bought homes with both a primary loan and a “piggyback” loan that substituted for a down payment. The Treasury Department will now offer incentives to lenders who refinance these loans. The result could be fewer foreclosures.