A drop in property values may have spurred demand in some of the most distressed areas, such as California and the Midwest. Even so, rising mortgage rates, a glut of unsold homes, and stricter borrowing rules indicate the real estate recession will persist for most of the year.
"Although it looks like it's improving, the housing market still has a long period of adjustment,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, who forecast sales would rise to a 5 million pace. "There is still a huge imbalance'' between sales and inventories.