By JAMES R. HAGERTY and RUTH SIMON
from The Wall Street Journal

Tighter credit is prolonging a deep slump in home sales, but a quarterly Wall Street Journal survey of 28 major metro areas shows that the surge in inventories of unsold homes is slowing. In two of those markets — Boston and Denver — the number listed for sale has actually declined from a year ago.

The latest trends offer some hope for an eventual recovery in a U.S. housing market that generally has been cooling since mid-2005. Even so, many economists and industry executives say that recovery will be very gradual and won’t start before 2008 at the earliest. That’s partly because more’stringent lending policies are keeping many potential buyers on the sidelines, while others are holding off in hopes of prices heading even lower. Meanwhile, there is still a glut of homes on the market in much of the country, especially in Florida and parts of Arizona, Nevada and California.

Home sales and prices generally should bottom out around mid-2008, says Mark Zandi, chief economist at Moody’s Economy.com, a research firm in West Chester, Pa. “The market will not revive quickly, however,” he says. “It won’t be until the turn of the decade before housing activity returns to more normal conditions.”

The message for home sellers is that they need to be flexible on price and may have to spruce up their house to stand out against plenty of competition, including from builders desperate to shed inventory. In Atlanta’s southwestern suburbs, builder Winstar Neighborhoods is offering free Chevrolet Aveo subcompacts to buyers of certain new homes. Given the glut, buyers in most markets can take their time and bargain hard on price.

read more at The Wall Street Journal