A slight rise in US property prices is unlikely to help the real estate sector recovery as experts predict price falls during the rest of 2011 and into 2012.

Residential property prices in the United States rose nationally by 3.5% in the third quarter over the previous quarter, according to the latest home data index from Clear Capital.

Data shows that since the middle of Spring, national rolling quarter on quarter prices gained 3.5% through September, compared to a 4% reported through August. Although prices are still up, the tide appears to be turning, Clear Capital said.

The company forecasts a small decrease in prices for the fourth quarter of 2011, and a continued slide through the end of the first quarter of 2012. Year on year price changes remain down 3.8%, the company said.

At the regional level, the Midwest continues to lead the nation with a quarterly home price gain of 7.2%, followed by the Northeast at 3.5%, South at 3.2% and West at 0.3%.

Clear Capital predicts US home prices will drop 1.6% during the last three months of 2011, and 3.2% by the end of the first quarter of 2012.

The projected drop through the first quarter of 2012 moves prices closer to where prices were during the first quarter of 2011, the lowest since the downturn began, the company said.

The third quarter home price data ‘shows continued slowing of the price gains we’ve seen this year, especially across the spring and summer months,’ said Alex Villacorta, director of research and analytics at Clear Capital.

‘The housing market has yet to demonstrate the fundamentals necessary to overcome a seasonal slowdown over the next six months, which drives our projected 3.2% drop in national home prices through the first quarter of 2012,’ he added.

REO saturation improved across the country with only slightly more than 25% selling as distressed, down 9.2 percentage points since May and down 15.6 percentage points since the peak in the first quarter of 2009.

Meanwhile, the US housing market will hit bottom this year and remain flat until 2014, when it will start to slowly recover, according to Rick Sharga, an executive vice president with Carrington Mortgage Holdings.

‘We’re looking at a catfish recovery,’ he told attendees at the Asian Real Estate Association of America conference in San Francisco, adding that the market will bump along the bottom for some time before starting to revive.

More than a million foreclosure actions that should have taken place this year have not yet moved forward, and that delay pushes a resolution of the housing market’s problems into next year and beyond, he said, citing data from RealtyTrac.

‘We can’t expect to see home price appreciation until we work through these distressed assets,’ he explained.

Banks hold about 800,000 REOs, and three-quarters of those are not listed for sale, said Sharga. Another 800,000 homes are in foreclosure and 3.5 million loans are delinquent.

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