NEW YORK (Reuters) - Prices of single-family homes in September fell more than twice as fast as expected from the prior month, while prices compared to a year earlier rose more slowly than forecast, according a widely watched index of U.S. home prices released on Tuesday.

KEY POINTS: * The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 0.8 percent in September from August on a seasonally adjusted basis. * Economists polled by Reuters had expected a decline of 0.3 percent. * S&P, which publishes the indexes, also said home prices in the 20 cities index rose 0.6 percent from September 2009, slower than the 1.1 percent expected.

COMMENTS:

GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

“The home prices indexes were soft and weaker than expected. The housing market still faces a lot of headwinds and with the supply of properties still on the market, prices are still under pressure. It will probably take stronger sales and potentially a lot more time to work through the problems.”

RICHARD DEKASER, PRESIDENT, WOODLEY PARK RESEARCH, WASHINGTON:

“This tells the post-tax credit relapse in housing is substantial and it’s deeper and more persistent than I had expected. We have seen this in other indicators. On balance, the housing market is very weak and it’s not rebounding as quickly as one had hoped for.

I don’t see further housing decline in 2011. I still expect home sales to pick up in the fourth quarter of next year.

Housing remains the dominant asset held by banks. So any kind of a markdown in the housing outlook would mean downside risk on bank earnings and keep credit tight in the foreseeable future.”

GARY SHILLING, PRESIDENT, A. GARY SHILLING & CO., AN INVESTMENT RESEARCH FIRM, SPRINGFIELD, NEW JERSEY:

“This isn’t surprising, at least not to us. Housing is in big trouble. Excess inventories remain a big problem, so weakness in prices isn’t surprising. We think there will be another 20 percent decline from there, though that decline has been held up by the moratorium on foreclosures. But those things seem to be clearing away, so I think we’ll be seeing more houses on the market soon. And as prices go down, more people get underwater, leading people to walk away. So prices are going to be the leader in the whole complex of sales. If we go down another 20 percent, the number of people underwater will leap from 23 percent to 40 percent, and that will probably lead to another round of write-offs for lenders. That will be Act II in the whole drama of the housing collapse.”

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

“The market expected disappointing news and got news that was even more disappointing than it expected. You now have seasonally adjusted declines in home prices in each of the last three months. This suggests further downward pressure in the housing market. Not necessarily large price drops, but still significant. So those who are still concerned about the housing market have reason to wring their hands at this report. The tone in housing prices is down and in production and sales is sideways to down.”

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

“It’s actually quite interesting -- especially the national numbers. They weren’t expected to fall negative quite so quickly. It’s a lot weaker than expected. The 20-city numbers are in line with expectations. Bottom line on this stuff is that the data confirms what I think a lot of economists suspected which was that we would see house price weakness again after the expiration of the first-time home-buyer tax credit.

“It’s pretty widespread, price declines in almost every city. Eighteen out of the 20 big ones were down in September. More price weakness, I think that’s first and foremost. While that might not be too surprising given what we know about the level of foreclosures and the difficulty of getting sales up off the bottom, it still has implications for the economy, particularly for bank earnings. A lot of banks marked up the value of mortgages on their books...they may have to mark those back down again. There will be banks that probably need more capital as a result.

“As far as consumers go, housing’s not quite as significant as it used to be, but there is still a wealth effect. Falling home prices, for a lot of people, means that their wealth is eroding.”

MARKET REACTION:

STOCKS: U.S. stock index futures held onto steep losses

BONDS: U.S. Treasuries held steady at higher levels.

FOREIGN EXCHANGE: The dollar held onto gains versus the euro.