Home prices across the nation improved for their fourth consecutive month in May but remain about 17% lower than one year ago, according to the S&P Case-Shiller Home Price Index.

The 10-City and 20-City Composites are 16.8% and 17.1% lower, respectively, compared to May 2008. Historically, those are major declines, but in the current context they represent the slowest annual price drops in close to a year. Just one month before, the figures were -18.0% and -18.1%.

“There is a clear inflection point in the year-over-year data, due to four consecutive months of improved rates of return, after the steep decline that began in the fall of 2005,” said David Blitzer, Chairman of the S&P’s Index Committee. “In addition to the 10-City and 20-City Composites, 17 of the 20 metro areas also saw improvement in their annual returns compared to those of April.”

Home prices in May 2009 are at levels last seen in mid-2003, “indicating that the three years of appreciation that occurred from 2003-2006 were all given back in the following three years,” said a Case-Shiller press release.

Since prices peaked in Q2 2006, the 10-City Composite has fallen by a staggering 33.3%.

“The crux of this report is clearly that the tone in U.S. housing market activity is beginning to improve dramatically", said TD strategist Millan Mulraine. “Indeed, even though prices continue to fall, the pace of decline is undoubtedly diminishing, and one suspects that it will only be a matter of time before a firm bottom is formed on U.S. home prices.”

Regionally, annual price declines remain biggest in the West and the South. Home prices in Phoenix have plummeted 34.2%, while prices are down 32.0% in Las Vegas. 26.2% in San Francisco, and 25.2% in Miami. Here is the summary of results for May 2009.

Looking ahead, Blitzer said prices may be stabilizing but that appreciation will still be some time off.

“While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis home prices are still down about 17% on average across all metro areas,” he said, “so we likely do have a way to go before we see sustained home price appreciation.”