Index adds to spate of upbeat housing news

There were fresh signs Tuesday that home prices in much of the country are stabilizing and the housing market is on the mend.

Home prices in May posted their first monthly increase since the summer of 2006, according to the Standard & Poor's/Case-Shiller 20-city index. Prices rose from April in 13 of the cities tracked, notably Cleveland, Dallas and Boston.

The news follows upbeat reports showing sales of newly built and existing homes rose in June for the third straight month. And new home construction, while still weak, is the best it's been since the fall.

The news: The 20-city home price index rose 0.5 percent from April to a reading of 139.8, but was still 17.1 percent below the reading of 168.6 in May a year ago. It was the fourth consecutive month the index indicated prices have turned the corner and are heading back toward positive territory.

The 20-city index has lost more than 32 percent since its peak reading of 206.52 three years ago. That means home prices are back to mid-2003 levels.

The report: The Case-Shiller index measures home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.

What it shows: The index tracks repeat sales of a designated group of homes in each city. By measuring the sales price of the same properties over time, the index prevents the data from being skewed by a change in the types of homes sold. Sales between related parties, such as family members, are excluded because they may not reflect true market values.

What it doesn't show: The indexes only measure price data in 20 major metropolitan areas in 15 states and the District of Columbia. So many areas of the country are not represented.

Why it matters: Investors closely watch the Case-Shiller indexes to gauge the level and direction of home prices. The indexes include a broader mix of properties compared to the index created by the Federal Housing Finance Agency. That index excludes many high-end properties, as well as homes bought with riskier mortgages or all cash.

The quote: "We may be on the way to recovery," said Maureen Maitland, vice president of S&P's index services. "I say 'may' because it's only been a couple months of data and home prices are seasonal ... It will take a couple more months to see if we have turned around."