Home prices fall 3% in early 2010

NEW YORK (CNNMoney.com) -- Home prices fell in the first quarter of 2010 but are still higher than they were a year ago.

According to the S&P/Case-Shiller nation-wide index, home prices fell 3.2% quarter-over-quarter but have still managed to climb 2% year-over-year.

The index continued to show weakness despite very low mortgage interest rates and tax incentives to encourage home purchases.

Two other indexes tracked by Case-Shiller registered declines for the month of March, 0.5% for its index of 20 major cities and 0.4% for the 10-city index.

"The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices," says David M. Blitzer, chairman of S&P's index committee.

Brad Hunter, who follows the housing market for Metrostudy, a consulting and data-providing company, is predicting further price erosion along the lines of 10% or so before the market fully bottoms out.

"I've been dismayed by how weak demand has been across the country," he said.

Many of the cities covered by the index showed continued problems: Las Vegas recorded a 12% decline over the past 12 months and Detroit prices have fallen 4.6% since March 2009.

There were a few winners led by San Francisco, where prices have jumped more than 16% over the past 12 months.

Over the past many months the housing market has shown some good signs and bad, according to Mike Larson, real estate analyst with Weiss Research.

"In the grand scheme of things, housing is affordable again," he said. "Lenders aren't really tightening standards any more and the employment situation has stabilized. That's the good news."

However, there is also a huge backlog of foreclosed homes that has become known as the "shadow inventory." They could really depress prices as they start coming on the market.

And while financing has improved over the past year, it still can be tough for some people to get a mortgage. Also, employment gains have been modest at best and that is crucial for housing.

"We're still missing robust job growth," Hunter said, "the element that pulls us out of decline."

This housing recovery will take a very different form than past ones, according to Susan Wachter, a professor of real estate at the Wharton School.

"Housing, which usually leads us out of recession and into recovery will be a lagging indicator this time," she said. "Consumers will look to the health of the whole economy to decide whether to make a home purchase or not."