THE California housing market may be showing the first signs of a recovery after three years of declining sales and two years of rising foreclosures, the UCLA Anderson Forecast said yesterday.

While home prices in the most populous American state are still weak, the number of houses and condominiums trading hands in California is rising, according to the Anderson Forecast at the University of California, which released its 127-page forecast yesterday.

"The combination of steep price declines, lower interest rates, and an easing of the credit crunch may now be bringing bargain hunting buyers back into the market," for California homes, Ryan Ratcliff, an Anderson Forecast economist, wrote in the report obtained by Bloomberg News. Riverside County posted a year-on-year increase in the number of homes sold, he wrote.

The collapse of the subprime-mortgage market contributed to a rise in foreclosures as well as drops in home prices and sales in California. In the first quarter, mortgage defaults in the state rose 143 percent to the highest level in 15 years according to La Jolla, California-based DataQuick Information Systems.

Foreclosures will likely continue to hurt California's housing market for the rest of this year and then start to moderate in 2009, the Anderson Forecast said.