The nation's biggest cities are posting steady gains in home prices, a closely followed index showed Tuesday, adding fresh evidence that the U.S. housing market is stirring to life.
But economists are divided over whether the recent improvement is the result of temporary federal policies or a sign that homes have gotten cheap enough to spur a lasting recovery.
Home prices in 20 metropolitan areas rose 1% in August from the month before, according to the Standard & Poor's/Case-Shiller index released Tuesday. The index has posted three consecutive month-to-month gains, bringing home prices in August to pre-bubble levels of autumn 2003. The price index is down 30% from its May 2006 peak.
"We are seeing stabilization," said Patrick Newport, an economist with IHS Global Insight.
A variety of federal policies has contributed to the steadying of home prices. The federal government has offered an $8,000 tax credit for first-time buyers. Interest rates on mortgages have hit their lowest levels in years as a result of the Federal Reserve's campaign to keep credit flowing throughout the economy. And a dreaded wave of foreclosures appears to have been averted as banks responded to government pressure to work with borrowers facing foreclosure.
What remains uncertain is where the housing market will go if these policies ease.
Michael D. Larson, an interest rate and real estate analyst for Weiss Research, said he expects the real estate market to stumble with the expiration of the tax credit at the end of November.
Still, he said, relatively low prices will continue to spur demand from shoppers.
"You are going to see some give-back; you are probably going to see a pause in the recovery," Larson said.
"But I think the fundamental story is that housing got way too expensive and now you could argue that housing is cheap again, and that is what it boils down to."
Christopher Thornberg, a Los Angeles economist who was an early predictor of the housing bubble, disagreed.
"I can't emphasize enough how this rally in the market is being driven by policy and not fundamentals," he said.
August home prices declined 11.3% compared with the same month a year earlier, according to the index, although the year-to-year decline wasn't as steep as in recent months.
The index's annual rate of decline has been improving since early 2009, S&P said.
Looking at the seasonally adjusted monthly data, 17 of the metro areas tracked by the index showed improvements in August compared with July. Meanwhile, 19 of the 20 markets showed moderation in their year-over-year rates of decline.
Southern California cities -- San Diego and, in particular, Los Angeles -- have seen notable gains, separating themselves from other Sun Belt cities, including Las Vegas and Phoenix, Blitzer said.
Los Angeles-area prices in August improved 1.3% over July on a seasonally adjusted basis. The index for Los Angeles was down 12% compared with the same month a year earlier.
Home prices in San Diego rose 1.5% on a seasonal basis from July but fell 8.9% compared with August 2008.
San Francisco-area homes gained 2.6% on a seasonally adjusted basis over the month of July.
On a year-over-year basis, San Francisco-area homes declined 12.5% in August.
Only the cities of Las Vegas, Charlotte, N.C., and Cleveland reported monthly declines in August.
August home prices in the Las Vegas area dropped 0.8% over July on a seasonally adjusted basis. Las Vegas also had the biggest year-over-year drop, falling 29.9% in August.
Las Vegas has been hit hard by the drop in tourism, oversupply in housing, construction crash and high unemployment, said Larson, the analyst with Weiss Research.
Phoenix fared better, posting a 1% home price increase in August over July. But the city had the second-largest year-over-year drop with a 25.1% decline in August.
The index compares the latest sales of detached houses and accounts for factors such as remodeling that might affect a home's sale price over time.
Using those data, an index score is determined to show price changes, with a score of 100 reflecting January 2000 prices.