Home prices unexpectedly slipped in December but the annual rate of decline slowed, reinforcing the housing market's rocky road to recovery, Standard & Poor's/Case-Shiller indexes showed on Tuesday.

The S&P composite index of home prices in 20 metropolitan areas declined 0.2 percent in December, matching the dip in November, for a 3.1 percent annual drop.

A Reuters survey had forecast that prices would be unchanged for the month and down 3.2 percent annually, following a 5.3 percent annual drop in November.

It's really ambiguous right now as to where this market is heading, Yale University economics professor Robert Shiller, a creator of the S&P Case-Shiller indexes, said on a conference call.

We've been through a major boom, a major bust and then since April of 2009 the most dramatic turnaround that we've seen in our data all the way back to 1987, he said.

But momentum has fizzled and housing is in a holding pattern, Shiller said, citing particular worry about rising mortgage defaults.

Economists in a separate Reuters housing poll had said the bottom had probably been reached though prices were unlikely to gain this year. But even stability is welcome after prices tumbled for more than three years, helping send the U.S. housing market into freefall and the economy into recession.

The S&P/Case-Shiller U.S. national home price index, which covers all nine census divisions, fell 2.5 percent in the fourth quarter from the same period a year earlier. Annual declines in this measure, like the 20-city and 10-city indexes, diminished throughout 2009.

The national price measure was down 19 percent annually in the first quarter, 14.7 percent in the second quarter and 8.7 percent in the third quarter.

On a seasonally adjusted monthly basis, the 20-city index rose 0.3 percent in December, S&P said, matching the November increase.

Despite this steady improvement, much of it on the back of government incentive programs that are due to end this spring, prices in December reflected hurdles still facing the housing market.

Unemployment hovers just under 10 percent, foreclosures continue to run at a record pace and banks still own a massive amount of repossessed properties yet to be placed on the market.

The government tax credits of $8,000 for qualified first-time buyers and $6,500 for move-up buyers soon expire, with contract signings required by April 30 and loan closings by the end of June.

Many of the secondary markets, which were away from the center of the initial problem, are starting to feel the effects of the crisis, said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania.

While affordability has improved, confidence about the outlook has not, so there's hesitancy to move on purchases, he said.

Prices declined in 15 of the 20 metro areas in December compared with November.

Three of the markets, Charlotte, North Carolina; Seattle, and Tampa, Florida; posted new lows for the index as measured by the past four years, erasing any gains seen in the past few months, S&P said.

(Reporting by Lynn Adler, additional reporting by Ryan Vlastelica, Editing by Leslie Adler)

United States