Case Shiller index shows house prices rising 0.3 percent

The rebound in US housing prices is fizzling.

After rising from last year's lows, prices look to be heading toward a second dip. Zillow, an online real estate company, reported last week that 12 metro areas have officially entered a double dip. Home prices for the US as a whole fell in January for the second month in a row, according to a Federal Housing Finance Agency report (.pdf).

So housing experts were expecting the closely watched S&P/Case-Shiller index to confirm the decline. But it didn't.

Although the 20-city composite index did fall on an unadjusted basis, the seasonally adjusted data showed a 0.3 percent increase between December and January.

That means the uptick in prices that began last year is fading but continues, said David Blitzer, chairman of the S&P index committee.

Why are so many experts glum? Because the market has been artificially propped up twice: first by a tax credit for first-time home buyers that ended in November and second by an expansion of that program, which included tax credits for existing home owners.

Prices could "drop another 3 to 5 percent from current levels, but it's an educated guess," says Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. "They could drop another 10 percent."

The response to the second housing stimulus has been so tepid and it ends so soon (April 30) that it's possible that prices won't fall by much after that.

The real key will be employment. If the economy begins creating jobs, perhaps as early as this month, then the housing market – and prices – could begin rising again.

Mr. Newport, like many economists, isn't expecting much right away. "In the second half of this year, we are going to see the market start growing on a sustainable basis," he says.