A true bottom has formed under house prices but that assumption could be challenged later this year as the share of distressed sales once again outpaces home sales during the fall and winter months, according to Wells Fargo.

“This is a reoccurring problem because the level of home sales is so low,” said Wells Fargo Securities senior economist Mark Vitner.

He noted in an interview Tuesday afternoon that the rate of price increases will de-accelerate during the winter, particularly if there is harsh weather in most of the nation and REO is selling in Arizona, Florida and the other “sand” states.

“On a non-seasonally adjusted basis, we could see prices fall on a month-to-month basis,” Vitner said. But he doesn’t expect to see a big slide in values. “We think the worst is over. A true recovery has begun,” Vitner said.

The WFS Economics Group is forecasting the Federal Housing Finance Agency (FHFA) house price index will rise 1.2% in 2012 and 1.7% in 2013. The FHFA HPI is based on Fannie Mae and Freddie Mac purchase mortgage transactions.

Meanwhile, sluggish household growth and a preference for renting is holding back home sales, according to the WFS “Housing Data Wrap-Up” report.

A recent Census Bureau survey shows a “larger proportion of households are choosing to rent rather than buy,” WFS economists contend.

From the first quarter of 2011 to the first quarter of this year, the number of renter-occupied homes rose by 1.5 million units, while the number of owner-occupied homes fell by 491,000 units. (Some of the rental units are apartments.)

“Two prominent trends apparent in this shift are the recent mobilization of investors to purchase foreclosed properties and convert them to rentals and the larger number for young persons choosing to rent because their employment prospects remain uncertain,” the WFS economists write.

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