The rate of decline in home prices is slowing so that the bottom of the market is now expected to be reached in March, First American CoreLogic said in its monthly analysis.

National home prices, including distressed sales, declined by 10.1 percent in August from a year ago, according to data from First American CoreLogic and its new LoanPerformance Home Price Index (HPI).

This was an improvement over July’s year-over-year price decline of 11.6 percent and June’s decline of 14.1 percent, the group said.

Excluding distressed sales, prices declined by 6.2 percent year-over-year in August, by 6.8 percent in July, and by 8.3 in June, illustrating the significant negative impact that distressed sales are having on home prices. Home prices of distressed sales continue to decline at a larger annual rate than non-distressed sales.

Based on its HPI, the company is projecting that declines will continue through the remainder of this year before hitting bottom in March. The projected declines are predicated on the expiration of the homebuyers’ tax credit and the growing number of homes entering foreclosure, First American CoreLogic said.

The tax credit has given a short-term boost to both home sales and volume, but its termination, combined with projected increases in foreclosure inventories, could place additional downward pressure on house prices through the winter.

For the five months beginning last March, the national HPI has seen month-over-month increases in home prices, with and without distressed sales, though some of this improvement may be related to normal seasonal patterns.

The index forecasts positive appreciation beginning in the spring. By next August, the index is projecting that 12-month appreciation for national home prices will be 4.6 percent. Home prices in two of the most depressed markets, California and Florida, will show gains in excess of 7 percent.

Including distressed sales, cumulative peak-to-trough declines are projected to be 37 percent by March, or 24 percent when distressed sales are excluded. In August, the HPI had fallen by 28.1 percent from its peak in April 2006 when distressed sales are included, and by 20.7 percent when they are excluded.

The HPI for the segment of the market including distressed sales is sometimes more optimistic than the segment of the market excluding distressed sales. This indicates a continuing stronger recovery in the lower priced segment of the housing market in the near term – consistent with the findings of the “Federal Reserve’s latest Beige Book’:http://www.dsnews.com/articles/commercial-real-estate-is-weakest-sector-but-not-systemic-risk-fed-beige-book-2009-10-23. Much of the investment activity is occurring in the lower priced segment of the market.

The rust belt markets (Michigan, Ohio, Indiana) have replaced the sun belt markets (California, Florida, Nevada, Arizona) as those for which the HPI is projecting the largest further declines in home prices.

First American CoreLogic noted that it has revised its methodology for the HPI report to provide more detailed data, including an expanded transactions database, a new weighting methodology, a 12-month forecast, and metrics that exclude distressed sales (short sales and REOs), which have become an increasingly large share of sales activity. Comparisons to previously published HPI data should be avoided, the group said.