Home sales are improving without a major uptick in mortgage applications, but prices could slow in the second half as the economy battles other negative indicators, Capital Economics said Thursday.

The economy's overall slowdown is likely "to take some of the wind out of the improvement in housing demand," said Paul Diggle, property economist for the research firm.

Diggle said annualized price growth over the past three months is up 6.2% and 9%, based on S&P Case-Shiller and CoreLogic (CLGX) research, respectively.

Prices on a seasonal basis have also shown a capacity to weaken in the final six months of the year, making a slow down in price growth not uncommon in the second half.

There is potential home prices could fall for a few months in 2012, but Diggle says "the bigger picture should remain that housing is in recovery mode and that prices will rise overall this year."

The report notes a recent loss in economic momentum, but says there's no real indication of a looming recession.

Based on Diggle's analysis for Capital Economics, home supply may be leveling off, but there's still a shortage of properties for sale.

Even though the National Association of Realtors' affordability index shows price deterioration, this indicator does not reflect the increase in average mortgage costs that consumers face, Diggle said.

The Capital Economics report staves off excessive fears of a foreclosure wave, saying an increase is unlikely to materialize. The nation had 2.56 million homes for sale in May, which is in line with the long-run average, but still higher than the previous month.

"Indeed, with supply rising in three of the previous five months, there have been some early signs that the number of homes in the visible inventory could be starting to stabilize," he said. "One reason why supply might soon stop falling at its recent pace, or even rise a touch, is if more homes in the foreclosure process are put up for sale — whether after the bank has taken repossession, or prior to that stage in the form of a short sale."

Still, Diggle said any increase in supply will mostly likely not be sufficient enough to drastically change the balance between supply and demand.