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Residential property prices in US cities showing stability, latest indices show

But the year on year declines are slowing and it is the seventh month in a row to show improvements for the two indices from Standard & Poor’s which track the price path of typical single family homes in major metropolitan areas.

 The 10-City and 20-City Composite Home Price Indices declined 10.6% and 11.3%, respectively. In 19 of the 20 metropolitan areas, Cleveland being the only exception, price decline improved in August from July.

‘Broadly speaking, the rate of annual decline in home price values continues to improve.

We see this general trend whether you look at the as-reported data or the seasonally adjusted figures,’ explained David Blitzer, chairman of the S&P index committee.

From the peak in the second quarter of 2006 through the trough in April 2009, the 10-city composite is down 33.5% and the 20-city composite is down 32.6%, the report said.

Las Vegas had the biggest rate of annual decline at nearly 30% while Dallas had the lowest decline of 1.2%.

Minneapolis aw a 13.7% decline and San Francisco was down 12.5%.

The trend is towards the nation’s biggest cities showing steady gains in home prices.

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.

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 has not yet emerged as banks responded to government pressure to work with borrowers facing foreclosure.

‘We are seeing stabilization,’ said Patrick Newport, an economist with IHS Global Insight.

But Michael 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.

‘You are going to see some give-back; you are probably going to see a pause in the recovery.

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,’ Larson said.

However, Christopher Thornberg, a Los Angeles economist who was an early predictor of the housing bubble, disagrees.

‘I can’t emphasize enough how this rally in the market is being driven by policy and not fundamentals,’ he said.