Is the recovery in home prices stalling?

After roughly nine months of improvement, the gains in home prices are weakening.

An index of 20 cities didn't rise from September to October, according to data released Tuesday by the S&P 500/Case-Shiller Home Price Indices (.pdf). While these unadjusted month-to-month changes are closely watched by Wall Street, the data when adjusted for seasonal variations was a little more encouraging. Measured that way, the monthly gain for October was 0.4 percent.

Nevertheless, many analysts are pessimistic about the direction of home prices in 2010.

"The turn-around in home prices seen in the spring and summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis," said David Blitzer, chairman of the index committee at Standard & Poor’s, in a release. “Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip."

What worries analysts is that foreclosures and delinquency rates, which already hit a record high at the end of the third quarter, look likely to rise in the coming months. And the share of homes that are vacant and for sale is inching back up toward the record high set in the fourth quarter of 2008, points out Patrick Newport, an economist with IHS Global Insight, in a written analysis. "Despite the recent positive reports on housing prices, we believe that prices have further to fall – about another 5 percent to 10 percent."

Some metro areas in the index are faring better than others, according to the new Case-Shiller report. Compared with a year ago, Denver and Dallas are almost back to positive territory – far better than the 7.3 percent average decline for the 20-city index. Las Vegas, by contrast, has seen prices fall 38 straight months with houses on average selling for less than half of what they were selling for at their peak.