The Twin Cities area was one of the nation's warmer housing markets this summer as home prices rose faster here than in other metro areas, according to a closely watched housing index released Tuesday.

But market observers still warn that economic uncertainty could cause prices to start sinking again in a "double dip" scenario.

Minneapolis-St. Paul area home prices rose 3.2 percent from July to August, according to the Standard & Poor's/Case-Shiller national home price index, compared with a 1.2 percent average increase for the 20 cities tracked by the index. Only Cleveland failed to show an improvement in prices.

This is the fourth straight month of improvement for Minneapolis-St. Paul and the nation. It is also the second month in a row that the Twin Cities came out on top of the index; prices here rose 4.6 percent from June to July.

Still, home prices have a long way to go before recovering what they've lost. In this market, median home prices are still 13.7 percent below August 2008 levels. That is slightly worse than the 11.3 percent that prices are down nationwide.

The Minneapolis Area Association of Realtors reported the August median home price for the metro area was $175,000. Case-Shiller data show August prices in the Twin Cities area are about where they were in August 2001.

David Blitzer, chairman of the Index Committee at Standard & Poor's, said the Twin Cities may be on the top of the index for the second month in a row because the area's prices peaked and bottomed earlier than the other areas tracked.

The median price peaked in September 2006 at $229,000 and bottomed in April at $153,000.

"Plus, the run-up was not as wild as some places, so the recovery is probably easier," he explained in an e-mail.

Buying before winter

Chris Galler, chief operating officer for the Minnesota Association of Realtors, said he thinks area prices have risen faster because of the area's many cold months.

"Consumers are trying to get into houses before the winter comes," he said, adding he wouldn't be surprised to see prices fall in December and January.

The widely reported Case-Shiller numbers aren't seasonally adjusted. When taking seasonal variations into account, home prices here were up 2.3 percent in August, a slightly lower increase than San Francisco, and up 1.0 percent nationwide.

Housing experts such as Blitzer and Galler worry that prices may head south again if the unemployment rate continues to rise and the home buyer tax credit is not extended.

An extension seemed likely Tuesday afternoon as Senate leaders debated the details.

The credit could buoy home prices through the winter, especially if the credit expires before the housing market traditionally heats up in spring.

The Conference Board reported Tuesday that consumer confidence fell unexpectedly this month because of the unemployment picture. Home prices are tied to consumer confidence, because housing values make up a large percentage of net worth for many families.

Foreclosures still loom

Galler worries about a new wave of foreclosures hitting the market in 2010 due to failed loan modifications and more homeowners losing jobs. Foreclosures depress overall home prices, as homeowners hunt for deals.

"It's very difficult to see where we're not going to have foreclosures going forward," he said.

Data released today by Realty Trac, an online marketplace for foreclosed properties, show foreclosures rising faster locally than nationally. The Minneapolis-St. Paul metro area had 9,767 foreclosure filings in the third quarter, a 13.5 percent increase from the second quarter and nearly double the third-quarter total last year, Realty Trac said.

The report found one in every 136 Twin Cities area households received a foreclosure notice during that period, on par with the national figure.

Kara McGuire • 612-673-7293

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