Home prices stopped declining in early January and even increased for the first time since August, according to the Clear Capital home price index. Over the last three months, home prices did decline 1.6% from the previous period. But at the start of 2011, Clear Capital said prices began “showing life.” The company’s senior statistician Alex Villacorta said it is the first uptick since the homebuyer tax credit was in force. It expired in April 2010, and prices have dropped off since. Villacorta warned however that any conclusions of a recovery would be premature, but he did say it was a positive sign. “This recent national change in price direction is encouraging for the overall housing sector, yet it is still too early to determine whether this current uptick in home prices is a temporary reprieve or the start of a sustained recovery,” Villacorta said. The changes in prices, especially during a point in the year when sales are slow, is a sign that demand may be returning. Even more encouraging, Clear Capital said the main driver of the price increase was the slowing rate of sale of REO properties, those repossessed through foreclosure. Every spike in REO saturation, or the percentage of REO sales of all activity, has coincided with a drop in prices. But over the past three months, that saturation increased 1.4%, a drop from recent gains of 3.2%. If this deceleration continues, Clear Capital said, home prices could be poised for future gains “ahead of a seasonal spring lift.” But RealtyTrac‘s Senior Vice President Rick Sharga said from what his company is looking at, major banks currently hold 1 million REO and have kept 70% of that off of the market so far. Still, Clear Capital reported that thirteen of the highest performing markets posted gains over the last three months. The largest gains came in Cleveland (12.6%) and Dayton, Ohio (9.6%). However, Cleveland prices remain 55% below its peak in 2006. “Although many markets still remain under significant downward pressure in light of increased distressed sale activities, it is clear that the severity of the downturns observed in October and November have subsided,” Villacorta said. Write to Jon Prior. Follow him on Twitter: @JonAPrior