Long road to U.S. housing recovery despite tighter supply

WASHINGTON, Wed Aug 8, 2012 – U.S. home prices are inching up as an ebbing tide of foreclosures creates a shortage of properties at a time of pent-up demand, but do not expect the housing market recovery to shift into higher gear.

Tightening house supplies have turned some parts of the country into sellers’ markets, marked by intense bidding wars among buyers eager to take advantage of rock-bottom mortgage rates and still-low home prices.

“It is encouraging that demand is flowing back into the market and buyers are getting off the fence at last,” Stan Humphries, chief economist at real estate group Zillow told Reuters.

But it’s not off to the races for the housing market, the main trigger of the 2007-09 recession. Many homeowners remain saddled with properties worth less than the amount they owe banks and other financial institutions.

This means they cannot afford to sell their houses, even if they wanted to. As such, the supply of houses on the market will remain tight and weigh on sales.

Home resales declined 5.4 percent in June, with realtors blaming the drop on lack of inventory.

Contracts to buy homes, a forward-looking indicator of sales, also fell during the month for the same reason, casting a shadow on the budding housing market recovery.