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Home prices hit post-boom lows: What does that mean for housing market?

Despite fresh optimism about the housing market, home prices in the Case-Shiller Index fell during the first quarter, suggesting that the market is still stabilizing.

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"In most cities, home prices appear to be stabilizing," forecasters Patrick Newport and Michelle Valverde of IHS Global Insight write in an analysis of the new Case-Shiller numbers. They note that another prominent home price index, put out by the Federal Housing Finance Agency (FHFA), shows that more clearly.

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The housing market's progress has come as the job market has begun to improve and interest rates have remained low. 

At the same time, it's clear that many prominent cities still have a long road to travel to get back to normal market conditions. A large share of home sales nationwide are still of the "distressed" variety, as investors buy homes that have been in foreclosure or serious mortgage delinquency. 

About 12 percent of homeowners with mortgages, more than 6 million homeowners, were either delinquent or in foreclosure at the end of the first quarter, according to the Mortgage Bankers Association. About 22 percent of residential mortgages are "under water," with loan balances larger than the current value of the home, according to the data firm CoreLogic

These problems hit the market in two big ways. Most obvious is the high level of distressed properties for sale. The second factor relates to buyer demand: People who have defaulted on loans need to rebuild their credit scores before they can become homebuyers again. 

Another risk facing the nascent recovery in housing is the broader economy. If Europe falls into a new financial crisis based on concerns about the ability of nations like Greece and Spain to pay their debts and remain in the eurozone, it could hurt the economy worldwide. 

So the Case-Shiller numbers aren't dire news, but a rosy 2012 for housing is far from assured.

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