June 30 (Bloomberg) -- Home prices saw a “striking improvement in the rate of decline” in April and trading in funds launched today indicates investors believe the U.S. housing slump is nearing a bottom, said Yale University economist Robert Shiller.

“At this point, people are thinking the fall is over,” Shiller, co-founder of the home price index that bears his name, said in a Bloomberg Radio interview today. “The market is predicting the declines are over.”

Home prices in 20 major U.S. metropolitan areas fell in April at a slower pace than forecast, the S&P/Case-Shiller home- price index showed today. Today’s Case-Shiller numbers are the latest sign that that the worst of the housing slump may be passing. Sales of existing homes posted gains in April and May, while housing starts jumped in May from a record low.

“My guess would be that home prices are going to level off -- they’re not going to keep falling,” Shiller said in a separate interview with Bloomberg Television. Still, it’s “hard to predict” a speculative market, and “I am not optimistic that we’re going to see any sharp rebound.”

The index decreased 18.1 percent from a year earlier following an 18.7 percent drop in March. Economists predicted the index would drop 18.6 percent, according to the median of 33 responses in a survey conducted by Bloomberg. The measure fell 19 percent in January, the most since the data began in 2001.

‘Taken Aback’

“These numbers are really showing that there’s been a change in mood,” said Karl Case, a professor at Wellesley College and another co-founder of the index. “For these numbers to go up in eight states, I was quite taken aback.”

Home prices rose in eight of the cities measured on a monthly basis, led by Dallas, where home values rose 1.7% percent from the previous month. Values also gained in Denver, Cleveland, the District of Columbia, San Francisco, Boston, Atlanta and Seattle.

Prices were down from this time last year in all 20 cities in the index.

Shiller said the decline in housing prices may be less steep by year-end. “At this rate, it’ll be down 12 percent and I suspect it will be down less than that because of the improvement that we’re seeing,” Shiller said.

The Case-Shiller index has been falling for the last three years. The gauge declined 0.6 percent April from March, the smallest monthly drop in the since June 2008.

Index as Hedge

Shiller said that the MacroShares Major Metro Housing Indexes might help avoid future upheavals in the housing market, by allowing investors to hedge against falling home prices.

“This economic crisis is substantially due to a failure to manage risk adequately,” he said. “This is an opportunity to manage these risks.”

The MacroShares Major Metro Housing Up, an exchange-traded fund that tracks the cumulative change in the S&P/Case-Shiller Composite-10 Home Price Index, started trading today on the New York Stock Exchange with a value of $19.40 at 2:06 p.m. New York time.

The MacroShares Major Metro Housing Down, which allows investors to take the opposite position, betting that home prices will fall, traded at $30.87.

To contact the reporter on this story: Alison Sider in Washington at asider@bloomberg.net

Last Updated: June 30, 2009 14:20 EDT