Posted by Joseph Y. Calhoun, III

While I believe the housing market could be making a bottom in sales, prices continue to fall. The Case-Shiller and OFHEO indexes both showed continuing declines in reports this week. The OFHEO index wasn’t as negative as Case Shiller, but still showed a decline in the first quarter. Meanwhile, existing home sales rose in April, but inventory did as well (via Market Watch):

WASHINGTON (MarketWatch) — U.S. home prices dropped 0.5% in the first quarter of the year, marking a much smaller pace of decline than the previous quarter, the Federal Housing Finance Agency reported Wednesday.

On a monthly basis, prices fell 1.1% in March, the government agency said, breaking a two-month streak of price gains.

February’s gain, meanwhile, was revised to an increase of 0.2% from an initial estimate of 0.7%.

The FHFA data was one of two major housing reports Wednesday. In a separate report, the National Association of Realtors said that sales of pre-owned homes rose 2.9% to a seasonally adjusted annual rate of 4.68 million in April. See full story.

The Case Shiller indexes showed steeper declines (via Market Watch):

WASHINGTON (MarketWatch) — U.S. home prices fell a record 19.1% in the first quarter compared with a year earlier, according to the national Case-Shiller home price index released Tuesday.

On a month-to-month basis, prices in 20 selected cities fell 2.2% in March and were down 18.7% in the past year.

While the news is certainly negative, I continue to believe the housing market will bottom this year. New single family starts are still at very depressed levels but are starting to tick higher. We still have an overhang of inventory, but building can continue to rise slowly over the next couple of years to reach the normal level of around 1.5 million units.

I expect the price declines to continue for a while as inventories are just too high to expect any recovery yet. The increase in inventories last month was probably due to sellers who have been holding their homes off the market entering as sales pick up. That will keep inventory higher than normal for some time to come.