Home prices showed the smallest annual decline in almost three years in January, indicating there are surprising areas of strength in the housing market.
The Standard & Poor's/Case-Shiller 20-city home price index fell just 0.7 percent from last year on a seasonally adjusted basis. The index reading of 146.32 was almost in line with analysts expectations, according to a survey by Thomson Reuters.
"There was some positive momentum in home prices in January," wrote Ian Pollick, a portfolio strategist with TD Securities.
Better still, prices rose 0.3 percent from December to January, the eighth consecutive monthly gain. Among the 20 cities in the index, 12 rose.
"The housing market still has something of the blahs," David Blitzer, an S&P managing director, told CNBC in an interview. "It's a mixed report—one or two cities going better than last month—but overall 'flat' is probably a better description."
The index, released Tuesday, is up nearly 4 percent from its bottom in May 2009, but still almost 30 percent below its May 2006 peak.
Still, there are signs that last year's housing rebound won't last. Home sales sank during the winter, and government incentives that have propped up the market are ending.
Another reason for the positive news is simply that the Case-Shiller index measures a three-month average of home prices. So January's report includes November's strong home sales.
Many analysts expect that the Case Shiller number will eventually turn downward.
"It is only a matter of time before the index records a double-dip in prices," wrote Paul Dales, U.S. economist with Capital Economics, who forecasts a 5 percent drop. The market will be tested in the second half of the year, he wrote, when a tax credit that has boosted sales is gone.