US house prices rose by 0.3 per cent in the third quarter of 2009, helped by a government subsidy for first-time buyers.

The rise in the Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas, continues a broad improvement in house prices seen over the last six months.

But the gains follow mixed signals on the housing market with some economists saying that the worst is yet to come.

Separate data released today by First American CoreLogic, a real estate data provider, show that nearly one in four home owners, representing 10.7 million households, in the US are now in negative equity.

House prices have fallen so far that 5.3 million US households are tied to mortgages that are at least 20 per cent higher than their home’s value. More than 520,000 of these borrowers have received a notice of default, according to First American, raising the prospect of more foreclosures.

Foreclosure filings surpassed 300,000 for an eighth straight month in October as rising joblessness made it tougher for homeowners to pay bills, according to separate data from RealtyTrac, the real estate experts.

David M Blitzer, Chairman of the Index Committee at Standard & Poor’s, noted that average house prices were 9.4 per cent lower in the third quarter of 2009 than the same quarter of 2008. They are now at similar levels to what they were in autumn 2003.

“Fewer cities saw month to month improvements in September than in August in both seasonally adjusted and unadjusted figures,” Mr Blitzer said.

The housing market has been distorted by a rush of buyers keen to take advantage of the federal first-time buyer tax credit, worth up to $8,000, that was due to expire at the end of November.

That tax credit has now been extended until the end of April 2010. But economists remain nervous about the prospect for further gains in house prices.

Ian Shepherdson, Chief US Economist at High Frequency Economics, said: “We think October and November prices will be up, but after that we are very worried about the potential for a huge wave of supply next year, both from private sellers and banks.

“We fully expect home sales to rise next year but prices could easily reverse their recent gains.”

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