June 30 (Bloomberg) -- The home-price slide eased in April, underscoring signs the U.S. economy began to stabilize in the second quarter, while a drop in consumer confidence this month warned of a muted recovery.

“We are not out of the woods yet, but it’s moving in the right direction,” said Ian Morris, chief U.S. economist at HSBC Securities USA Inc. in New York. “The recession may already be over. Unfortunately, not all the pain goes away because the next phase is the jobless recovery.”

A separate report showing a surge in mortgage delinquencies sent stocks lower and pared losses in Treasuries. A jobless rate that is projected to reach 10 percent this year is likely to restrain any pickup in consumer spending, which accounts for 70 percent of the economy.

Real-estate values in 20 major cities decreased 18.1 percent in April from a year earlier, the smallest decline in six months, according to the S&P/Case-Shiller index released today from New York.

The Conference Board’s confidence gauge decreased to 49.3 from a revised 54.8 in May, the New York-based research group said. The figure was still above a record low of 25.3 reached in February.

The Standard & Poor’s 500 stock index fell 0.9 percent to close at 919.32. Treasury securities dropped, sending the yield on the benchmark 10-year note up to 3.53 percent at 4:19 p.m. in New York from 3.48 percent late yesterday.

Delinquencies

Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said. Prime loans 60 days or more past due climbed to 2.9 percent of all mortgages through March 31 from 1.1 percent at the same point in 2008, signaling government efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.

Another report from the Institute for Supply Management- Chicago Inc. showed its business barometer climbed to 39.9 in June, the second-highest level in the last nine months.

Economists forecast the home-price index would drop 18.6 percent following an 18.7 percent decline in the 12 months to March, according to the median projection of 33 economists surveyed by Bloomberg News. Estimates ranged from drops of 17.7 percent to 19.4 percent.

Monthly Gain

The home-price index figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

The measure was down 0.6 percent in April from the prior month, the best performance since June 2008. Eight of the 20 cities showed an increase in prices from March, led by a 1.7 percent gain in Dallas.

Home prices saw a “striking improvement in the rate of decline” in April and trading in funds launched today indicates investors believe the housing slump is nearing a bottom, Robert Shiller, co-founder of the index that bears his name and a Yale University economist, said in an interview on Bloomberg Radio.

Over the 12-month period ended in April, declines were most pronounced in Phoenix, which showed a 35 percent drop, Las Vegas followed with a 32 percent decrease, and San Francisco with a 28 percent decline. Property values in San Francisco climbed 0.6 percent in April from the month before, the first gain in two years and the biggest in three.

‘Biggest’ News

“The biggest and most import news is the underlying details in Case-Shiller” where previous bubble areas such as San Francisco are now seeing price increases, said HSBC’s Morris. “Home values are getting cheap given how much they’ve declined.”

The Conference Board’s measure of present conditions decreased to 24.8 from 29.7 the prior month. The gauge of expectations for the next six months fell to 65.5 from 71.5.

The share of consumers who said more jobs will be available in the next six months fell to 17.4 percent from 19.3 percent. The proportion of people who said they expect their incomes to rise over the next six months decreased to 9.8 percent from 10.8 percent.

“Consumers are feeling the heat this summer from rising gasoline prices to seized-up labor markets,” said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina. That “could keep third-quarter consumer spending muted,” slowing an economic recovery, he said.

Job Losses

The Labor Department is scheduled to release its next payrolls report in two days. The U.S. probably lost 363,000 jobs in June, compared with a 345,000 drop a month earlier, according to economists surveyed by Bloomberg. The unemployment rate, already at a 25-year high of 9.4 percent, likely increased to 9.6 percent, the survey said.

Some retailers continue to offer incentives in a bid to lure customers. Sears Holdings Corp., the largest U.S. department-store chain, said yesterday it will let customers who lose their jobs suspend payments and keep appliances bought with store credit cards.

“We thought this would be a way to get folks to jump in where they’d been a little reluctant,” Doug Moore, president of Sears’s home-appliance unit, said in a telephone interview.

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: June 30, 2009 16:25 EDT