July 2 (Bloomberg) -- U.S. foreclosures will peak in the second half of 2010 and home prices will continue to decline through the end of that year, according to Barclays Capital.

“Home prices are likely to continue to fall, albeit at a slowing pace, even after the economy technically emerges from the recession,” Michelle Meyer, an economist at Barclays Capital in New York, said in a report today. Prices may drop another 7 percent, she said, based on the S&P/Case-Shiller home price index of 20 U.S. cities.

The three-year-old housing slump has slashed U.S. home prices 33 percent since their July 2006 peak, according to S&P/Case-Shiller. Prospective buyers are constrained by rising mortgage rates, the highest unemployment since 1983 and the longest recession of the post-World War II era.

U.S. homeowners trying to sell are competing with a glut of discounted foreclosures. It would take about 9.6 months to sell the nation’s 3.8 million unsold homes at the current sales pace, according to the Chicago-based National Association of Realtors.

Foreclosures probably will rise to a record 2.5 million this year, according to Lawrence Yun, chief economist for the Realtors.

Existing U.S. home sales in May rose 2.4 percent to an annual rate of 4.77 million, lower than forecast, and the median price was down 16.8 percent from the same month in 2008, according to NAR.

Lowest Since 1963

Home resales probably will rise to 5.41 million next year from 4.75 million in 2009, Meyer said in the Barclays report. Sales of new houses may increase to 440,000 next year from 350,000 this year, she said. That would make 2009 the lowest year for new-home sales in Census Bureau records that go back to 1963.

“The slowing in the economic recession, with fewer job cuts and greater consumer confidence, along with improvement in financial conditions, should help support home sales,” Meyer wrote.

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

Last Updated: July 2, 2009 13:48 EDT