U.S. home prices may still be off from year-ago levels, but they climbed in July for a third consecutive month, evidence that a key segment of the U.S. economy may be on the mend.

Standard & Poor's said on Tuesday its 10-city S&P/Case-Shiller Home Price Index declined 12.8% from year-ago levels and its 20-city composite index fell 13.3% in July from a year ago.
In July, the 10-city composite index, which includes cities like Atlanta, Boston and Seattle, rose 1.7% to a reading of 155.85, while a gauge for prices in 20 cities rose 1.6% to 144.23.

July was the third consecutive month to show gains in both of these measures. Home prices gained in all markets but Las Vegas and Seattle.

“The two composites and all metro areas are showing an improvement in the annual rates of return, as seen through a moderation in their annual declines,” David Blitzer, chairman of S&P's index committee, said in a press release.

Economists warned that while the improvement in prices recorded by the two gauges ought to cheer investors, they cautioned that home values could be tested when the U.S. government takes away its backstop for housing.

“It remains to be seen if house price appreciation can survive when government support for the housing market is withdrawn,” according to a report from FTN Financial, which noted that the first-time hombuyers' tax credit expires in November and the Fed’s mortgage purchase program will end in March.

Economists at RBS said in a report that home prices will be “flattish or at a minimum rise by less than income for several years going forward.”

According to S&P, home prices in July are at levels where they were in the autumn of 2003. A 10-city measure is down 33.5% from a peak in prices in the second quarter of 2006 and a 20-city measure of home prices is down 32.6%.

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