With each economic release related to the state of the housing market comes the hope that this one, finally, will prove that the residential real-estate market is on the way to recovery.

But disappointment has been the overriding influence for those trading home-building stocks, which have made several attempts to rebound from devastating losses over the past three years, only to resume the previous downtrend.

Sales of existing homes rose 3.1% in July, compared with the June rate of sales, but the National Association of Realtors also said that housing supply grew once again, to a record 11.2 months of supply on the market. That is trouble for publicly traded sellers of new homes, which have been aggressively reducing inventory in an attempt to get ahead of the housing recession.

The SPDR S&P Home Builders exchange-traded fund, which tracks a basket of builders, is down 2% on the year, having put together a strong recovery since mid-July, when it was down 23% on the year. That's a better performance than the Standard & Poor's 500-stock index, down 12% on the year, but this ETF fell 48% in 2007, and the underlying stocks are still trying to regain their footing.

Analysts at UBS are skeptical, saying they don't expect a recovery in housing until mid-2009, which could damp interest in furthering this rally. "Limited near-term positive catalysts will lead to continued volatility in the stocks over next 2-3 months," they wrote.

Monday's home-sales news wasn't greeted warmly by investors in builders; the SPDR S&P Home Builders fund fell 74 cents, or 3.9%, to $18.25. Len Blum, managing director at investment bank Westwood Capital, says housing isn't likely to turn around until the supply overhang is eliminated, mortgages are more readily available again, and it becomes cheaper to buy versus renting a home. The firm still expects a 10.8% decline in home prices when compared with July 2008 levels.

UBS says the builders that have concentrated on "proactively" reducing land positions are better-positioned for the recovery, whenever it happens. Those include Toll Brothers, Ryland Group and Centex. Shares of those stocks have been mixed on the year; Toll has gained a bit more than 14% on the year, Ryland is down 18%, and Centex is down nearly 39%.

Write to David Gaffen at David.Gaffen@wsj.com

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