Home values in the Denver area dipped 5.4 percent in the year ending in September, far better than the 17.4 percent drop for the 20 cities tracked in the closely monitored S&P/Case-Shiller Home Price Indices released on Tuesday.

"I think Denver is going to lead (the nation) out of the doldrums," said Jack O'Connor, principal of the Prestige Real Estate Group in Denver.

"Sure, the markets are off," O'Connor said. "But Denver is the third-least affected market by the downturn, after Charlotte and Dallas. I think that Case-Shiller is absolutely positive for Denver, but it doesn't even take into consideration our falling inventory."

Prices are at levels not seen since the first quarter of 2004.

Karl Case, an economics professor at Wellesley College and co-creator of the Case-Shiller index, said he expects delinquencies and foreclosures to rise as unemployment increases, further pressuring the housing market.

The nation's unemployment rate is at 6.5 percent, a 14-year high, and is expected to climb higher.

"That has yet to hit this report," Case said.

And already the numbers look grim.

The sharpest monthly drops were in the West.

Phoenix posted the largest year-over-year decline of nearly 32 percent in September, the most recent monthly data.

Las Vegas dropped 31 percent and San Francisco nearly 30 percent. Miami, Los Angeles and San Diego all recorded annual decreases above 25 percent.

While Denver is in better shape than most places, it will continue to be battered by global economic forces, which will postpone a full recovery, said Ed Jalowsky, of Hottest Homes Realty.

"At least it's no longer like trying to catch a falling knife," Jalowsky said.

 -Rocky Mountain News