It was the good news that everyone had been waiting for. After a nearly three-year slump, home prices are finally starting to inch up, according to the latest reading of the S&P Case-Shiller Home Price Indices, released Tuesday.

Or was it?

Prices in 13 of the 20 metropolitan areas tracked by the nation s leading index went up in May 2009, compared with the three months ending in April. Two remained unchanged.

But while Home Prices Rise made for cheery headlines across the nation, economists warn that the housing market still has a long way to go before it hits bottom and when it does, the recovery ahead will be slow and drawn out.

Here are three reasons why:

1. The numbers need to be adjusted

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The reason for the gain was that in May and April, the real estate market usually registers more sales activity, which in turn leads to a slight uptick in prices, Moody says. Those trends are accounted for in seasonally-adjusted data.

On the bright side, the overall pace of decline does appear to be slowing on a year-over-year basis, down 17.1% as of May 2009. Prices are not declining as rapidly as they have been, which is a step in the right direction, Moody says.

2. Foreclosure moratoria skewed sales data

Foreclosure filings had nearly ground to a halt in the first three months of the year, as most large loan servicers put a temporary halt on foreclosures in anticipation of the government s announcement of the Making Home Affordable program. Fannie Mae (FNM) and Freddie Mac (FRE) also suspended foreclosures through the beginning of March. That temporary halt in filings skewed sales data for May, says Celia Chen, senior director of housing economics at Moody s Economy.com. Because fewer properties were foreclosed on, fewer were sold by banks or at foreclosure auctions. Foreclosure sales tend to suppress sale prices.

Now that the foreclosure ban has been lifted for several months, the giant backlog of homes making their way through the foreclosure process can suppress prices further, Chen says. I do suspect that even if the [modification] programs are modestly successful, there will still be a large number of loans that won t qualify for modification and that will increase the number of foreclosed homes for sale, she adds. Probably by the end of this year we ll see another significant decline in home prices and it will be mid-next year before it all stabilizes.

3. Unemployment will pace the recovery

Still hoping for a bottom in housing prices? Not until 2010, Moody says. That s largely because of rising unemployment, which is becoming the leading factor in new foreclosure filings.

We have transitioned from most foreclosures being a result of subprime lending to more than half now being a result of unemployment, says Rick Sharga, a senior vice president of RealtyTrac. Sharga expects unemployment to be the main cause of new foreclosure activity through the middle of next year, when option adjustable rate mortgages start resetting in large numbers. We have at least a year of large foreclosure activity before the market starts to settle down, he says.