Housing Prices: Steep Price Drops May Be Over

National home prices may be on the road to recovery.

After three years of declines, home prices increased 2.9% in the three months ended June 30, according to the latest S&P/Case-Shiller report. That is the first quarter-over-quarter improvement in three years.

Prices in the national index are down 14.9% compared with the second quarter of 2008, the report said. But that is better than the record 19.1% decline that was set in the first three months of 2009.

The slide may be over partially because prices have reached affordability levels not seen in a generation, drawing many buyers into the market.

Helping housing markets, too, is the government economic stimulus effort, which includes an $8,000 first-time homebuyers tax credit. That added discount has spurred many entry-level buyers into homeownership. That tax credit is due to expire in November, but many believe it will be extended so as not to halt the real estate recovery that appears to be under way.

Despite the upbeat report, Robert Shiller, one of the principle authors of the Case-Shiller index, expressed caution, pointing out that last year's turnaround quickly fizzled out.

Increased bank repossessions could unleash of flood of new supply on the market, which could dampen prices.

Meanwhile, the National Association of Realtors (NAR) reported recently that the rate of existing home sales increased between the 1st and 2nd quarters in 39 states. Median home prices continued to decline however in 129 of 155 metropolitan statistical areas during the same period. NAR president Charles McMillan said there is a sliver lining to the continued decline in prices — increased affordability.