Although index levels remain above their year-earlier mark, the drop signaled that the housing market remained weak even though mortgage rates were nearing historic lows and home buyers were able to take advantage of a federal tax credit this spring.
"The housing market may be in better shape than this time last year, but when you look at recent trends, there are signs of some renewed weakening in home prices," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement. "In the past several months we have seen some relatively weak reports across many of the markets we cover."
As of the first quarter of 2010, average home prices nationally are at similar levels to where they were in spring 2003. First-quarter values fell compared to the fourth quarter of 2009.
U.S. stocks stayed lower after the S&P/Case-Shiller index report came out, although traders were staying focused on the European debt crisis and tensions between North Korea and South Korea.
"It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices," Blitzer said. "Now that the tax incentive ended on April 30, we don't expect to see a boost in relative demand."
On the positive side, Case-Shiller home prices on average were unchanged, seasonally adjusted, in March, better than the -0.3% consensus, said Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, in an analyst note.
"This is a pleasant, though modest, surprise," Shepherdson said. "The steep drop in sales during the winter pointed to a decline in prices, but February dipped only 0.1% and March was steady. The year-over-year rate jumped in March, to 2.4% from 0.6%, but this is simply a reflection of very favorable basis effects because prices dropped sharply in March last year."
Looking ahead, Shepherdson said, prices could dip in April but should be firmer in May and June as a result of the increase in sales generated by the tax credit.
Read a story about February's S&P/Case-Shiller index from the archives of InvestmentAdvisor.com.