May Numbers Throw Cold Water on Hopes for Housing Recovery

Housing market improvements earlier in the year have been tempered by retreating numbers in May.

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After a few months of more encouraging data earlier this year, a slew of less-than-stellar May numbers threw cold water on hopes that the housing market could be finally turning around.

Instead, it seems the promising recovery has hit a plateau. Home sales and new construction activity retreated in May while delinquency and foreclosure rates ticked upward, peeling back progress made in late 2011 and early 2012.

Trulia's May housing barometer, which measures how far the market is on its way back to normal, fell to 35 percent, down from 37 percent in April. Since January, the barometer has hovered between the 33 to 37 percent range.

Here's a look at what contributed to the pullback in the housing recovery:

Construction starts. Although construction activity was up almost 30 percent from a year ago, the sector still has a long way to go, according to Trulia. New housing starts are just 23 percent of the way back to normal, underscoring how much the industry was decimated in the wake of the housing bust.

[See a slideshow of 10 mega-mansions on the market.]

Construction activity in May fell almost 5 percent from April. The one sliver of good news? The decline in May was due to a huge pullback in apartment building construction, a sector that tends to be super volatile.

Existing home sales. In a somewhat head-scratching turn of events, home sales dropped in May, but not for the reason you might think—instead of being hobbled by weak demand from hesitant house hunters, economists blamed the measly supply of homes on the market for disappointing sales figures in May.

In part, economists blame the high number of underwater homeowners—those who owe more on their mortgages than their homes are worth—for the low inventory of homes for sale. Faced with the prospect of having to write a check to the bank at closing, many would-be sellers are holding off, or renting their homes until prices recover more.

But even if house hunters find a home to purchase, getting a mortgage remains a huge hurdle. Banks are requiring bigger down payments and near-pristine credit records, making the dream of homeownership out of reach for a significant swath of the population.

In any case, according to Trulia's estimates, homes sales are still not even halfway back to their normal level from their worst point in the housing bust.

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Delinquency and foreclosure rates. Just when you thought the spigot releasing streams of foreclosures and distressed properties onto the market had slowed to a near trickle, more Americans started falling behind on their mortgages or being foreclosed on in May.

Foreclosure filings nationwide ticked up 9 percent in May, according to RealtyTrac, after 27 straight months of annual decreases. On the bright side, filings were down 4 percent from a year ago.

"It demonstrates that lenders on a nationwide level are starting to catch up with delinquencies," says Daren Blomquist, director of marketing communications at foreclosure information website RealtyTrac.

Overall, the delinquency and foreclosure rates are about 36 percent of the way back to normal, according to Trulia's estimates.

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter.