UPDATE 2-US home prices fall 18.7 pct on year in March-S&P

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By Julie Haviv

NEW YORK, May 26 (Reuters) - Prices of U.S. homes in March fell a sharp 18.7 percent from a year earlier, though some relief appeared to be in sight as, for the second month, prices did not slide at a record rate as they had been doing since late 2007.

Still, single-family home prices according to the Standard & Poor's/Case-Shiller Home Price Indices released on Tuesday were stuck in a slump as they also showed prices in the first quarter of 2009 dropped at a record annual pace of 19.1 percent.

The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down prices.

Many potential home buyers have been staying on the sidelines, waiting for prices to hit bottom and for the economy to stabilize. Economists contend the economy might not emerge from its severe slump unless the housing market stabilizes.

Torsten Slok, senior economist at Deutsche Bank in New York, said lower home prices have improved affordability and that is key to the housing market's recovery.

"We think we have the worst of the housing adjustment behind us, but home prices are likely to continue to decline for the rest of this year," he said.

On a month-over-month basis, S&P's index of 20 metropolitan areas fell 2.2 percent in March from February. The 20-city index dates back to 2000.

Price drops on both a month-over-month and year-over-year basis were worse than expected, based on a Reuters survey of economists. In the Reuters survey, economists expected home prices to fall 2.0 percent from the previous month and 18.4 percent from a year ago.

The composite index of 10 metropolitan areas declined 2.1 percent in March from February for a 18.6 percent year-over-year drop. The 10-city index dates to 1988.

"Declines in residential real estate continued at a steady pace into March," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

He noted it was the second month since October 2007 in which the 10- and 20-City Composites did not drop at a record annual pace, but also said the market had long way to go.

"Based on the March data, however, we see no evidence that that a recovery in home prices has begun," he said.

Adam York, an economist at Wachovia in Charlotte, North Carolina, said the declines remained significant.

"Home price declines will likely continue into 2010, considering the weakness in both the housing market and the broader economy, but hopefully the pace of decline will moderate over the next few quarters," he said.