Home prices rose once again in July but a drop in consumer confidence in September underscored the fragile state of the economy's recovery.

In the latest sign the housing market is stabilizing, home prices increased a seasonally adjusted 1.2% in July from the prior month, according to the S&P Case-Shiller home-price indexes released Tuesday. It was the second month of seasonally-adjusted gains.

.Prices are still 13.3% lower from a year earlier, but recent monthly gains show that the pace of decline has slowed. The government tax credit for first-time homebuyers has helped spur demand but with its expiration date looming on the horizon, many economists are concerned about how strong the housing market's recovery will be once it's gone.

"While housing is showing some signs of having reached a bottom, we need to recognize that it is a sector still on life support," Richard W. Fisher, Federal Reserve Bank of Dallas president said Tuesday, according to excerpts of his speech. "The market for housing will not become truly robust until market forces replace the prostheses of government support."

July's gains were spread across the country as prices climbed in 17 out of 20 markets. They continued to fall in Detroit, Las Vegas and Seattle. The Federal Housing Finance Agency's monthly House Price Index, released last week, showed a similarly positive trend -- rising 0.3% in July from June.

Consumer confidence highlighted the economy's weaker side, though, as it fell to 53.1 in September from 54.5 a month earlier, the Conference Board Consumer Confidence Index showed Tuesday.Americans' confidence about both the present state of the economy and expectations for its future performance slipped.

"It seems that we may be following a pattern that was established in the last two jobless recoveries," RDQ Economics analysts wrote in a note to clients. "In both cases, confidence rose in the early stages of economic recovery only to fall back to make new lows as jobs continued to decline."

Persistent weakness among consumers -- fueled by the high unemployment rate, tight credit and stagnant wages -- could threaten consumer spending and, in turn, the sustainability of any rebound.

And consumers aren't the only apprehensive ones. Business owners, too, showed hesitancy in the Business Roundtable's third quarter 2009 CEO Economic Outlook Survey released Tuesday.

While more than half of the 107 chief executive officers surveyed said they expect sales to improve in the next six months, far fewer said it's likely to translate into increased capital spending or hiring. Just 21% said they think capital spending will increase and an even smaller 13% said they expect to increase hiring.

The CEOs said they expect gross domestic product to fall 0.9% in 2009 -- better than that 2.1% decline they predicted in the second-quarter survey but still far more pessimistic than the majority of economists who think the economy will grow in the second half of the year.

"If this quarter is an indication we're heading in the right direction then you probably have 12 to 18 months before you start to see this filter down to employment increases," said Ivan G. Seidenberg, chairman of the Business Roundtable and chairman and chief executive officer of Verizon Communications

Write to Sara Murray at sara.murray@wsj.com