After months of stability, quarterly home prices in the U.S. fell 1.6% in the fourth quarter, according to real estate data provider Clear Capital.

On the outset, the numbers can be deceptive, as only one region in the United States experienced a notable decline. And one city in that market saw house values plummet so much, it took the national average with it.

Rising saturation of real estate-owned property sales in the fourth quarter caused home prices in the Midwest to lead the nation in depreciation. Prices in the Midwest fell 4%, marking the first time in seven months the region leads the nation in quarterly losses. The West, South and Northeast were relatively calm, with quarter-over-quarter declines of less than 1%.

Detroit's ailing housing economy sheparded the Midwest's descent. Home prices in the Motor City were pummeled in the fourth quarter, plunging 15.5%, more than double the decline in second place Milwaukee.

The quarterly declines pulled down the Midwest's year-over-year prices 5.2%, further than the 3% yearly fall reported reported in December. The drop in value is partly due to a 1.5% uptick in REO saturation over the past quarter from 29.5% to 31%, Clear Capital said.

Market seasonality and a lift in REO sales as a percentage of total home sales to 25.4% at the end of January from 24.8% at the end of 2011 caused the nation's home prices to fall 2.6%.

The inventory of foreclosures held by private banks fell throughout 2011. The REO level at the end of the third quarter was down 1.5% from $51.3 billion the previous quarter and 5% lower than $53.1 billion in a year earlier.

“Looking at the latest data through January, home prices remained relatively unchanged with the exception of the Midwest,” said Alex Villacorta, director of research and analytics at Clear Capital.

“Although prices at the national level continue to slide due to pressure from the Midwest, the lower priced segments of several specific markets are bucking the trend and seeing appreciation, suggesting that recoveries could be occurring from the bottom up."

Birmingham, Ala. took the lead among metropolitan areas in January with 4.3% growth in home prices quarter-over-quarter, bolstered by gains in the market's low tier segments (homes worth $63,000 and less), distressed asset sale prices and a reduction in REO saturation to 32% from a high of 40% in 2011.

Detroit’s total losses since the peak of the market are a staggering 77%, experiencing a 9.7% increase in REO sales over last quarter to a 51.8%. Although prices are still 10.8% above their lowest point in 2009, the domination of REO sales in Detroit means values will continue to be suppressed.

jhilley@housingwire.com