Washington — A wave of foreclosures is forcing down home prices in most major U.S. cities. But economists and real estate agents point to what they call a key first step for any housing recovery: a decline in the glut of homes for sale in markets hit hardest by foreclosures.

Low prices are leading investors to snap up foreclosed homes in Detroit, Las Vegas, Miami, Phoenix and Tampa. That's reducing prices in the short run. Yet it is also thinning the supply of homes, which must happen to clear the way for higher prices in the long run.

For some, the deals are too good to pass up on. A studio apartment on the Vegas strip that went for $500,000 at the height of the housing boom is now selling for roughly one-third the price.

Half of the homes listed in the Tampa Bay area, a short drive from some of Florida's nicest Gulf coast beaches, are selling for less than $100,000.

Such sales have helped shrink the combined supply of unsold homes in those five cities by 13 percent over the past year, according to local listing data analyzed by The Associated Press.

Home prices in each of those markets are at or below 2002 levels, according to the latest reading of the Standard & Poor's/Case Shiller 20-city home price index.

"If we were to see several consecutive months of supply getting smaller, it would point to an improving housing market," said Celia Chen, senior director at Moody's Analytics. "Even if it is investors buying them, they are renting them out in hopes that prices in the next several years will rise."

Economists caution that a second wave of foreclosures, specifically those that have been delayed by banks and backlogged courts, could throw the housing market back into turmoil. And few see home prices rebounding this year.

Home prices fell from January to February in 19 of the 20 metro markets tracked by the Case-Shiller index, and at least 10 major metro areas are at their lowest point since the housing bubble burst.

The index, which was released Tuesday, is slightly above the level hit in April 2009, the lowest point since the recession began. Analysts expect the March index will fall past the low point.

Still, getting rid of foreclosures and other risky properties is necessary for the market to turn around. When foreclosures and distressed properties get sold, home prices fall. As the supply of cheap homes shrink, prices stabilize.

Homeowners who held off moving because they didn't want to sell their home during the downturn become more confident that they can get a better price. That leads to more buying and selling, pushing prices up even further.

Most of the sales activity now is at the investor level. Private equity firms. Foreign and out-of-state buyers searching for vacation homes.

Individual investors looking to flip or rent out properties for a profit.

They are all scooping up cheap homes with cash, said Andrew Duncan, a Realtor who runs a Keller Williams franchise in Tampa.

In March, 35 percent of previously occupied homes sold were purchased entirely in cash, according to the National Association of Realtors.

"When the bargains do hit, there's more than one buyer looking for that bargain," Duncan said. "Buyers are losing out left and right when they bid because it's just so competitive."

Foreclosures have flooded the market in Miami. Three out of five homes sold there are foreclosures or short sales — when a lender allows a borrower to sell for less than a home's market value.

That has lowered the median home price by 19 percent in the past year, to $159,800 in March.



At the same time, the inventory of homes for sale has dropped nearly 24 percent. It would take seven months to clear those homes at the current sales pace. That's down from a 17-month supply just six months ago.



It would take just six months to clear Tampa's unsold homes off the market. That's down from about 8 months a year ago and 25 months in January 2008. Detroit's inventory of homes for sale has fallen 17 percent in the last year.



In Phoenix, the number of homes for sale has dropped by nearly 10 percent over the past year. The median sales price of a single-family home sold last month was $118,500 — down more than 12 percent from a year ago.



The supply of homes in Las Vegas would be cleared in less than seven months at the current sales pace. That's down from a 26-month supply in December 2007.



"It's like a feeding frenzy when a home goes on the market now," said Mike Shannon, a Detroit real estate agent who specializes in foreclosures. "We're getting a few dozen offers on some homes in a matter of days."



The thinning supply is due, in part, to a lull in foreclosures. They have dropped by more than 56 percent in Tampa and almost 64 percent in Miami. In those areas, the number of home receiving an initial foreclosure notice has plummeted.



That could change quickly. Many banks are revisiting thousands of foreclosure cases, spurred into action by federal regulators who have ordered top-to-bottom reviews of how foreclosures were carried out over the past two years. The logjam has been compounded in places such as Florida, New York and New Jersey, where foreclosures must be approved by a judge.



There's 1.2 million foreclosures expected this year, according to foreclosure tracker RealtyTrac Inc., and the decline in foreclosure filings is only temporary, said Mark Vitner, senior economist at Wells Fargo.



"The problems are still there," Vitner said. "There are fewer early-stage delinquencies so we are moving in the right direction but the slowdown in foreclosures is just drawing the process out."