Spring buying boosts home prices, market still sluggish

— -- U.S. home prices showed signs of stabilizing in July, but more drops are expected later this year.

Prices rose 0.9% in July over June, marking the fourth-consecutive month of increases for the Standard & Poor's Case-Shiller index released Tuesday.

The increases were not a surprise given typical home-buying boosts in the spring and summer. S&P cautioned that continued increases through the end the year and better annual results must occur before it could confirm a housing market recovery.

When adjusted for seasonal factors, home prices were essentially flat in July over June, S&P's data show.

"The housing market is still bottoming and has not turned around," says David Blitzer, chairman of the index committee at S&P.

July home prices were down 4.1% year over year, according to S&P's index of 20 leading cities. Minneapolis and Phoenix led the declines, with prices in those areas down about 9% year-over-year.

But 17 of 20 cities in the Case-Shiller index showed unadjusted increases in July over June, led by Detroit at 3.8%, Minneapolis at 2.6% and Washington at 2.4%. Las Vegas and Phoenix posted slight declines. Denver was flat.

Washington has benefited from a relatively strong economy. Prices may be rising in Detroit simply because they've fallen so far, says Patrick Newport, IHS Global Insight economist.

When adjusted for seasonal factors, only eight of the 20 cities showed price gains in July over June.

Many economists expect home prices to drop this year, given weak consumer confidence and high unemployment. Despite historic levels of housing affordability and low mortgage rates, home buyers are "staying on the sidelines due to fear and uncertainty," says Stan Humphries, economist at real estate website Zillow.

Home prices could also come under more pressure later this year as lenders pick up the pace on foreclosures.

In August, the number of default notices filed on U.S. housing units rose 33% from July, hitting a nine-month high, market researcher RealtyTrac reported earlier this month.

The increase may signal that lenders are starting to push through some of the foreclosures that were delayed after concerns arose last fall that companies were foreclosing on homes without adequate documentation, RealtyTrac says.

Distressed homes can deflate prices for other homes. In August, distressed homes accounted for almost one-third of existing home sales, the National Association of Realtors says.

IHS Global Insight predicts another 5% to 10% drop in home prices.