Karl Case, a co-creator of the S&P Case/Shiller home-price index, says the U.S. residential property market is improving enough so that an $8,000 tax credit for first-time buyers could be ended.

"We've got to phase back incentives, and this may be a good time to do that," Case said in an interview Tuesday.

The tax credit is scheduled to expire Nov. 30. Congress and the Obama administration are debating whether to extend it.

Home prices in 20 U.S. metropolitan areas measured in July by the Case-Shiller composite index climbed from the month before by the most in almost four years, according to a report released Tuesday. "It's hard to put a bad spin on it," said Case, an economics professor at Wellesley College in Massachusetts. "I believe in some cities you'll see the beginning of recovery."

Home values in 20 U.S. metropolitan areas fell 13.3% in July, from a year earlier, the smallest drop in 17 months, the S&P Case/Shiller index showed.

Adjusted for seasonal variations, the gauge rose 1.2% from the prior month, the biggest gain since October 2005.

California, which accounts for about 25% of the housing market, showed strong gains, Case said.

San Francisco prices rose 3.3% in July from June; Los Angeles values climbed 1.8 %, and San Diego properties gained 2.5%, according to the S&P Case/Shiller report.

"The thing that really got my heart fluttering again were the California numbers because that's a place where a lot of this started," Case said. "It's people buying up troubled assets that's helping."

Sales of foreclosed homes accounted for 40% of existing-property transactions in California in August, according to the research company MDA DataQuick.

The S&P/Case-Shiller index, published by Standard & Poor's Corp. and Fiserv Inc., was forecast to fall 14.2% for the year ended in July, according to the median projection of 36 economists in a Bloomberg survey.

The measure fell 15.4% in the 12 months through June.

Year-over-year records began in 2001, and the gauge has fallen every month since January 2007.

All 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year price decline in July than in the previous month. Las Vegas showed the biggest improvement, 31%; followed by Phoenix, 29%. Cleveland had the smallest decline, 1.3%

"The worst has passed," said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte. "We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets."

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