Nearly six years after home prices started falling, more U.S. housing markets appear to be nearing a new phase: a prolonged bottom.

Hitting a bottom, of course, isn't the same as a full-fledged recovery ... The good news is that housing construction and home sales appear to have hit a floor. Home builders cut back heavily in the past four years and began construction on just 434,000 single-family homes last year, the lowest level on record. Research firm Zelman & Associates estimates builders will start construction on 540,000 homes this year, a 24% increase.
...
Housing economists are debating whether that shadow inventory will spoil any housing recovery. "That'll be like a ball and chain," said Mark Fleming, chief economist at CoreLogic. "It won't prevent a recovery, but it could drag it out over several years."
...
Ms. Zelman ... said the shadow inventory is "not going to result in the double dip that people always talk about." She points to a burgeoning appetite for housing from investors, who are scooping up homes that can be converted to rentals, and six years of pent-up demand from traditional buyers who feel better about their financial prospects. "The fear is gone," she said.
...
While the foreclosure overhang is serious, some economists say there is a less-noticed tailwind that could balance things out: the sharp decline in new construction over the past four years. "A lot of the people who talk about 'shadow inventory' don't talk about how slow the overall housing stock has been growing," said Thomas Lawler, an independent housing economist