Bottom alert? February house prices slow their fall

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For the housing market, the good news is that the bad news is getting less bad. While home prices in the most recent S&P/Case-Shiller Home Price Index still showed decline in the country's major cities, the rate of decline has slowed. Sixteen of the 20 metro areas surveyed in February saw an improvement in their monthly returns compared to January.

The five cities with the biggest one-year price dips -- Phoenix (-35 percent), Las Vegas (-31.7 percent), San Francisco (-31 percent), Miami (-29.5 percent) and Los Angeles (-24.1 percent) -- all saw a slowing of their decline. For example, in January the monthly fall-off was 5.5 percent in Phoenix, but "just" 4.5 percent in February. Las Vegas saw a price drop of 4.4 percent in January, compared to 'only' 3.8 percent in February. A few more months of data like this could mean the market is truly finding a bottom.

This is the first month since October 2007 that the 10- and 20-City Composites did not post record annual declines. "While the declines in residential real estate continued into February, we witnessed some deceleration in the rate of decline in some markets," David Blitzer, Chairman of the Index Committee, wrote in a press release. "We will certainly need a few more months of data before we can determine if home prices are finally turning around."

Of course, when you look at the data from peak to peak, the news is still devastating for people in many markets. Those who bought a home near the peak in Phoenix in June 2006 have seen a decline in their home values of more than half -- 50.8 percent, to be exact. Ten of the 20 metro areas posted declines over 30 percent and seven of those -- Detroit, Las Vegas, Los Angeles, Miami, Phoenix, San Francisco and San Diego -- posted declines in excess of 40 percent.

As I wrote in my story Florida Real Estate: Life Among the Toxic Assets, these loses are the result of overbuilding, excessive speculation, record numbers of foreclosures and unscrupulous lending. The downturn started when investors walked away from real estate they could no longer flip for a quick profit. Then those who took subprime loans started to walk when they couldn't afford the drastic increases in their monthly payments and couldn't sell the property or refinance to a better loan. Finally, the carnage moved to those who took prime mortgage loans, but saw their property values drop below the amount due on their mortgage, giving them little incentive to stay in their homes.

As foreclosures start to be bought up, these price declines will slow further. In many of the hardest-hit markets it's now cheaper to buy than pay rent. Two real estate king pins -- Donald Trump and Sam Zell -- think it's time to buy. If all these signs continue to move in this direction, it will definitely be time to send out the "bottom party" invites.

If you're a first time buyer, you can now take advantage of an $8,000 tax credit, which should cover most of your closing and moving costs. And even if you don't qualify, you may want to start looking now. The rule of thumb on real estate bottoms is that if you insist on waiting for the right signal, you'll probably miss it. Particularly when, as is the case with this bottom, there are so many people waiting in the wings.

Lita Epstein has written more than 25 books, including The 250 Questions You Should Ask About Buying Foreclosures.

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