Home prices down – but not as much as the month before

For the first time in two years, a closely watched index of US home prices shows San Francisco posting a month-over-month gain.

The 0.6 percent gain in Bay Area prices is modest, but along with other indicators, it's a sign that US real estate markets are beginning to move from crisis toward normalcy.

California, after all, has been one of the hardest-hit housing markets in America.

Now the state is showing some signs of improvement, and across the United States, home prices are no longer falling in such a uniform or steep fashion.

Overall, the Standard & Poor's/Case-Shiller index of 20 large US cities showed home prices down 0.6 percent in April – less than the 2.2 percent one-month drop it posted in March. In other words, the market may be starting to bottom out.

Some metro areas are still in much tougher shape than others, with declines in Miami and Las Vegas offsetting the positive news in San Francisco. But the slowing pace of decline suggests that the housing market is taking important steps toward stabilization.

"It’s good that the declines are slowing down," says Dan McCue, an analyst at Harvard University's Joint Center for Housing Studies in Cambridge, Mass. "It’s another one of those 'less bad' signs."

True, rising unemployment is still adding to a record tide of mortgage defaults. Yet Michael Darda, an economist at MKM Partners in Greenwich, Conn., cites several factors that are moving in the right direction:

• Metro areas show more variation, in contrast to the synchronized price declines seen last year.

• The pace of mortgage applications has remained firm for home purchases (as opposed to refinancing existing loans), despite a rise in interest rates. One reason: The decline in home prices has made homes very affordable, relative to incomes, in much of the US.

• Sales volume appears to have reached bottom back in January. A rising pace of home sales tends to come before a turnaround in home prices.

In a report following the release of Tuesday's Case-Shiller data, Mr. Darda says that home prices should begin to level off later this year, as the inventory of homes for sale declines. Right now, there's about a 10-month supply of homes on the market nationwide, and he expects that to fall to a seven- or eight-month supply.

Every one of the 20 cities in the Case-Shiller index saw improvement in April compared with March, although in most cases it was just a less-bad drop. Eight cities saw a gain in price, although seasonal adjustments bring that total down to four.

Confirmation of the progress in California came last week, as Realtors there reported rising sales volume and an uptick in home prices in May. The unsold inventory fell to a four-month supply, down from nearly nine months a year before.

Florida, by contrast, still has a big inventory of unsold homes.