The rate of recovery in the depressed U.S. housing market could be a key factor in determining future stock market gains and indications are the pace could slow dramatically.

Although today’s release of U.S. house price data is expected to show prices are climbing after plunging by almost one-third from the peak in mid-2006, foreclosure rates remain at record levels.

And the foreclosures are what could be a drag on the economy. The continued rise in mortgage foreclosures is causing U.S. banks to tighten their lending standards, said Steven Ricchiuto, chief economist with Mizuho Securities USA Inc. “Without accommodative lending, it will be difficult for the economy to regain a sustainable growth pattern.”

what are the expectations?

Nevertheless, rising house prices indicate that the housing market may have bottomed. The Federal Housing Finance Agency’s U.S. house price index is forecast to show prices rose 0.4 per cent in June, the second consecutive monthly gain after a 0.9-per-cent rise in May.

Home prices in the U.S. as measured by the S&P/Case-Shiller index, which is also due for release today, are expected to be down 16.45 per cent on a year-over-year basis in June, a slight improvement compared with a 17.1-per-cent decline in May, according to a survey of economists by Bloomberg.