Jan. 27 (Bloomberg) -- The worst U.S. housing recession since the Great Depression may end this year as the inventory of homes declines on a drop in new construction, said Karl Case, co-creator of the S&P Case/Shiller home price indexes.

U.S. builders broke ground in December on 550,000 houses, the fewest in five decades of government statistics, the Commerce Department said last week. Sales of new homes in the U.S. fell in November to a 17-year low of 407,000 as credit dried up and consumer confidence sank, the government said on Dec. 23. Data on December new-home sales comes out on Thursday.

The inventory of homes on the market tumbled last month as bargain hunters snapped up foreclosures, the National Association of Realtors said yesterday. Measured in months, the supply fell to 9.3 from the 11.2 in November that tied April’s all-time high, the Chicago-based trade group said. The glut of available properties in 2008 sent home prices falling and kept buyers on the sidelines.

“It’s not going to be a terrible year for the housing market, believe it or not,” Case, a professor at Wellesley College in Wellesley, Massachusetts, said in an interview on Bloomberg Radio. “I think these stabilizing forces are there, and over the next year you’ll see the housing market come back into equilibrium.”

Sales of previously owned homes in the U.S. rose from a record low last month, propelled by the biggest slump in prices in more than seven decades as foreclosures surged, the Realtors’ group said. Purchases rose 6.5 percent to an annual rate of 4.74 million from 4.45 million in November as the median price dropped 15 percent from a year ago, the biggest decline on record.

Prices Slide

Home prices in 20 U.S. cities fell 18.2 percent in November from a year earlier, according to the S&P/Case-Shiller index released today. It was the fastest drop since the data series began in 2001. All areas in the 20-city survey showed a decrease in prices in November, led by a 33 percent drop in Phoenix and a 32 percent decline in Las Vegas.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

The U.S. median home price probably fell 10 percent in 2008 to $197,000, according to a Jan. 6 forecast from the National Association of Realtors that covers all sales, not just the 20 cities in the S&P/Case-Shiller Index. Sales of previously owned homes likely dropped 13 percent to 4.9 million, the Chicago-based trade group said.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: January 27, 2009 12:54 EST