3 Slivers of Good News from The Case-Shiller Home Price Index

Prices fell nationally, but a closer look shows that things might be improving for the housing market.

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News that home prices sank to a near-decade low in February, marking six straight months of declines, cast another shadow over a housing recovery that seemed so promising earlier this year.

Dropping about 3.5 percent year-over-year, average home prices reported in the closely followed S&P/Case-Shiller home price index were disappointing, with several cities tracked by the index hitting new post-crisis lows.

"February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year," David M. Blitzer, chairman of the Index Committee at S&P Indices, said in a statement.

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To be sure, February's Case-Shiller indices are nothing to cheer about, but they're not a death toll for the housing market either.

On the contrary, there were several slivers of good news in the report if you look beyond the gloomy headline numbers:

February wasn't as bad (as January). Although the numbers are all still in negative territory, February's numbers were "less bad" than January's levels. Nationally, prices fell about 3.5 percent in February for the 20-city composite the index tracks, compared to almost 4 percent in January.

Yes, prices are still declining overall, but the drop isn't as steep, an encouraging sign that the housing market is stabilizing, experts say.

Prices are actually improving (in some cities). Nationally prices continue to fall, but that doesn't mean there isn't improvement at a more local level. And, according to experts, the local level is what really matters anyway.

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Twelve of the 20 metropolitan areas the index tracks saw improvement in February, up from just 10 in January and 8 in December. What's more, the strongest gains were reported in some of the hardest hit markets, according to Michael Gapen, senior U.S. economist at Barclays Capital. Prices in Phoenix grew more than 2 percent, while Miami posted gains around 1.2 percent.

"We continue to view the larger number of cities that experienced price gains to be a positive indicator that more regional housing markets are turning the corner and will likely experience stable, to slightly rising, home prices in the year ahead," Gapen wrote in an e-mail.

Foreclosures continue to weigh down prices. That might not sound like good news, but it helps explain why, in spite of better sales numbers, home prices continue to languish. Foreclosures tend to sell at a discount and because the Case-Shiller index includes sales of distressed properties, home values reported by the index skew lower.

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"February's Case-Shiller indices tell more of the same story: Foreclosure re-sales continued to pull down home prices," Stan Humphries, chief economist at real estate website Zillow, wrote in an e-mail. "Although sales were up in February, foreclosure re-sales still made up about one-fifth of all sales."

Despite the nagging price declines, Humphries expects homes sales to continue to trend upward—as long as employment keeps pace—which will slow the rate of home value depreciation.

Meg Handley is a business reporter for U.S. News & World Report. You can follow her on Twitter, Facebook, or Google+. You can also reach her at mhandley@usnews.com.