Tim McLaughlin, VP Weichert Financial Services

Home prices in the second quarter rose from the year ago period for the first time since 2007, according to a closely watched index, the latest indication the housing market is starting to recover.

The report released Tuesday found that for the quarter ending in June, home values were up 0.2% from the same period in 2011. Nearly one-third of the 167 metropolitan areas tracked posted annual price increases for the second quarter compared with the year ago period. Prices rose fastest in cities with fewer homes for sale and strong investor demand.

“It seems clear that the country has hit a bottom in home values,” said Stan Humphries, Zillow’s chief economist, who had previously forecast that housing wouldn’t hit bottom until late this year or early in 2013. The fact that the gains came during a period in which the economy wasn’t very strong suggests “there’s some fundamental organic strength to the housing market,” Mr. Humphries said.

According to Zillow, prices climbed 2.1% from Q1 to Q2, the largest such gain since the end of 2005. The Wall Street Journal’s quarterly survey of housing market conditions in 28 US metropolitan areas shows that inventories of unsold homes have fallen in every market and are down by more than 20% in two-thirds of those markets. Housing inventories are falling for several reasons. Banks have listed fewer foreclosed properties for sale as they have modified more troubled loans and approved more short sales. Foreclosure listings are down by 23% from one year ago to their lowest level since October 2009, according to research firm Zelman & Associates. Some investors are renting out those foreclosures, rather than flipping them for a profit, which also is putting a lid on inventories.

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