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Since we last wrote about the Case Shiller Index, home prices have continued to drop at a steady pace according to the S&P/Case Shiller Home Price Index released earlier this week. The National Home Price Index recorded a record annual decline of 19.1%, putting home prices at late 2002 levels. The overall prognosis from the Index Committee’s Chairman, David M. Blitzer, was unsurprisingly dim: “We see no evidence that a recovery in home prices has begun”.

The one sliver of silver lining: The 10- and 20-city Composites did NOT post a record annual drop for the second time since October 2007. That said, they ain’t faring so well either. Leading the pack of record annual declines are Phoenix, Las Vegas and San Francisco - each with an annual drop of greater than a 30%.

Will it get better? Or are these markets still “over-priced”? Everything - including the number of price slashed homes on Trulia - seems to indicate the latter. Below are the number of price reductions on current listings to give you an idea of just how much sellers are dropping prices (and still not selling):

Source: Proprietary Trulia analysis from May 26, 2009

What’s the punchline? For those expecting a near turnaround on home prices, don’t hold your breath. But, this could actually be great news for the savvy buyer - especially if you know how to search by price reductions on Trulia.  Here are three amazing deals in the hardest hit cities that made me think twice about investing my pennies in the stock market:

#1) Las Vegas, NV area: 3,975 listings with price reductions

$280,000 (over a 100K reduction from June 2008)
5 br | 4 ba | 3,546 sqft | Single-Family Home

#2) Phoenix, AZ area: 6,525 listings with price reductions

$65,990 (Sold in 2003 for $137,785)
3 br | 2 ½ ba | 1,616 sqft | Single-Family Home

#3) San Francisco area: 1,186 listings with price reductions

$550,000 (after a 15% reduction only two weeks prior)
2 br | 1 ba | Apt/Condo/Twnhm

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